We’ve covered budgeting and saving as foundations of money management. Investing is another element: it means putting money into assets like stocks, bonds, or real estate to earn returns through capital gains, dividends, or interest.
Investing involves more risk than saving; your money is not federally insured, and you could lose the amount you deposited. That’s why, before investing, it’s crucial to have an emergency fund covering three to six months of expenses and to keep money for short-term needs—like a car or home down payment—safe and easily accessible in an insured bank or credit union account.
If you’re new to investing, consulting a qualified professional, such as a financial adviser, can help you build a strategy aligned with your goals. While investing carries greater risk than saving, it also offers the potential for larger long-term rewards.
Investment Products
The most common investment products are stocks, bonds, mutual funds, and exchange-traded products, often used for retirement or college savings. Other vehicles include real estate, precious metals, commodities, private equity, and cryptocurrencies.
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- Bonds are like IOUs commonly issued by governments, municipalities, or corporations to raise money. Investors who buy bonds lend money and receive interest over a specified period. Main types include corporate bonds, municipal bonds, and U.S. Treasuries securities.
- Stocks represent ownership in a company, or “equity.” Stocks come in two main forms: common stock and preferred stock.
- Mutual funds pool money from many investors and invest in a diversified mix of assets, such as stocks, bonds, and money market instruments. The overall mix is called the fund’s portfolio, and a professional adviser manages it. Exchange-traded products (ETPs), including exchange-traded funds (ETFs), combine aspects of mutual funds and conventional stocks.
- Hedge funds are private, unregistered investment funds that use pooled investor money to pursue more flexible investments and strategies.
- Commodities are basic goods and materials like precious metals, crude oil and natural gas, wheat, coffee, and livestock.
- Cryptocurrencies, or crypto assets, are digital assets built on blockchain technology.
Always research the risks, fees, and suitability of any investment before committing your money.
Investment Accounts
Investment accounts are used to hold your assets and cash. The right type depends on your goals, risk tolerance, and ownership needs.
- Brokerage accounts let you buy and sell stocks, bonds, and other types of investments. You can open a cash account (pay in full for purchases) or a margin account (borrow to invest).
- ABLE accounts, or 529A accounts (enabled by the 2014 Achieving a Better Life Experience Act), allow individuals with disabilities to save and invest with tax advantages, without risking eligibility for public benefits.
- College Savings accounts, like 529 plans and Coverdell ESAs, help parents or guardians invest in education expenses. Similar to college savings accounts, custodial accounts, established under the Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA), allow adults to invest for a child’s benefit.
- Saving for retirement may be the most important financial goal you’ll ever pursue. Building a nest egg of enough funds that can support you for twenty years or more requires proactive planning, steady saving, and disciplined investing. Common retirement accounts include 401K, 403(b) and 457(b), and Individual Retirement Accounts (IRAs).
Most financial institutions offer at least standard brokerage accounts and IRAs, and some may also provide college savings accounts and custodial accounts.
Investment Management
Investment management is the professional oversight of your investment portfolio. This service, also known as asset management, can be provided in different ways. Traditional investment advisors offer personalized guidance, helping you build and maintain a portfolio tailored to your financial goals. Alternatively, a “robo-advisor” refers to an automated digital investment advisory program; it creates and manages a portfolio for you, based on your goals and risk tolerance after answering an online questionnaire, often at a lower cost.
Investment Scams
Investment scams promise quick, easy money with little to no risk, often through financial markets, cryptocurrency, real estate, or precious metals/coins. These scammers attract you with infomercials, social media posts, or online ads that encourage you to attend a free seminar/training, order free materials, or watch free introductory videos learning about the secret of getting rich quickly.
- Investment training scams: Their “tested” or “secret” strategy will help you get rich and change your life, but these promises and so-called success stories are almost always fake or rare exceptions.
- Real estate investment scams may advertise “world-class” properties with luxury amenities, but these properties often take years to materialize, are never built, or lack the promised features. Reselling the land may also be impossible due to a lack of buyers.
- Real estate training scams market online or in-person programs by promising risk-free investments and quick profits with little effort or experience—claims that are rarely true and are designed to get you to pay for their courses.
- Precious metals and coin scams often feature individuals posing as “metal dealers” or “rare coin merchants” who gain your trust, falsely claim expertise, and then fail to deliver on their promises, pocketing your money. Before investing in bullion, coins, or precious metals, review the Commodity Futures Trading Commission’s (CFTC) precious metals fraud alert and research the market carefully.
- Cryptocurrency investment scammers often target victims via social media, texting, or dating apps, building trust through fake connections, then pitch fraudulent crypto investments. Cryptocurrency scammers will use fraudulent investment platforms and will often appear very lucrative, encouraging the victim to continue to invest; however, when they are ready to withdraw all their earnings, their account is usually “frozen” with “fees” needed to pay to unlock the funds. If you were a target of a cryptocurrency scam, you can file a complaint with the Internet Crime Complaint Center (IC3).
Red flags include guarantees of high returns, pressure to act fast, scarce investment details, or promises of wealth with little effort or risk. Always research independently before making decisions, resist pressure, and know the risks involved in investing. If you believe you have been a victim of fraud, report it to the Federal Trade Commission (FTC) or the U.S. Securities and Exchange Commission (SEC).
Investment Tools & Resources
There are many investing resources available, including apps, online tools, and real-life professionals. Some popular investment apps include:
No matter which resource you choose, always take time to research your options, understand the risks, and select tools that match your goals and level of experience.
Additional Resources
A Roadmap to Your Journey to Financial Security (SEC)
Cost of Retirement (Khan Academy)
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