Basic Investment Options
If you're putting your retirement savings in an ordinary savings account, it's time to rethink that strategy. Investing in stocks, bonds and mutual funds is a faster, more lucrative way, to feather your nest egg.
When you buy stock in a company, you are buying a piece of that company and have a claim on every cent that company makes. As a company's earnings improve, so does your investment. Although the economy dips from time to time, stocks are solid investments. Since 1926, the average stock has gained close to 10 percent a year. The best way to purchase a stock is through a broker [source: CNNMoney.com].
Bonds are a type of debt, or an IOU. When you purchase bonds, you become a banker. You loan that money to a city, a company and even the federal government. In return, they promise to pay you back with interest. Municipalities use bonds to build bridges, roads, buildings and other projects. The federal government sells bonds to finance its debt. Experts say that your investment portfolio should contain at least 15 percent in bonds [source: Kansas]. While most bonds are safe investments, others come with a risk. However, the riskier the bond, the more money you can earn [source: Kansas].
Mutual funds take money from thousands of small investors and use the cash to buy a combination of stocks, bonds and other types of securities. Mutual funds are good for diversifying your investment portfolio, and they're inexpensive. In most cases, you have to invest a couple of hundred dollars. There are many categories of mutual funds, and some are safer than others. The riskier the fund, the more money you stand to make -- and lose. When investing in a mutual fund, you need to consider the level of risk and how much the fund strays from its annual average return [source: CNNMoney.com]