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Personal Finance Investment Risk Types Investment Types

Basic Investment Types

There are different types of investment you can make that range from the most safe to the most risky
Below is a list of different types of investment

  1. Bank account: Pays a low interest rate.
  2. Treasury bills: is when you are loaning money to the Federal government. . Treasury bills have the lowest risk of any fixed income instruments because the federal government has the highest credit rating, and as a result its debt is the most secure. This means that while federal T-Bills have the lowest risk, they also offer the lowest returns.
  3. Bonds: Bonds are fixed income investment that is designed to pay a steady amount of interest income. Bonds are a legal contract with set terms that are specifically laid out at the time of issue
  4. Mutual Funds: Mutual funds allow both small and large investors with similar investment objectives to take advantage of investment opportunities by pooling their money together.
  5. Stocks: A share of stock represents your ownership position in the company. Your return is based on appreciation of the stock’s value and dividends.


Bonds are considered safe and conservative, but since the risk is low, so is the return. Governments and corporations are the two main issuers of bonds. Bond prices are affected by fluctuations in interest rates. In fact, there is an inverse relationship between bond prices and interest rates. When interest rates rise, bond prices generally decrease. When interest rates fall, bond prices generally increase.
Below is a list of different types of bonds:

  1. Treasury Bonds: these bonds are issued and guaranteed by the US Government. Treasury bonds are issued in denominations of $1,000, $5,000 etc.
  2. U.S Savings Bonds: Savings bonds are a form of Treasury security, they are similar to Treasury bonds but they are issued in denominations that range from $50 to $10,000.
  3. Municipal Bonds: They are issued by states, cities, counties etc.
  4. Corporate Bonds. Bonds that are issued by corporate. Corporate can not guarantee your investment, so they give you a higher rate.
  5. Junk Bonds: Junk bonds are issued by corporate with a very high risk level and with high return. Usually those corporate are small companies that want to raise capital fast.

Mutual Funds:

Mutual funds are when investors pool their money to invest in a portfolio of securities run by a professional manager.
Mutual funds attract investors for the following reasons:

  1. Diversification: Most investors do not have enough capital to invest in May funds; however, combining their capital with other investors in a mutual fund creates a large pool of wealth that allows each investor to purchase several shares or units in different companies. By diversifying your investment, you can manage your risks and help reduce the negative impact that a poorly performing individual investment could have on your portfolio.
  2. Flexibility: Mutual Funds supplies many investment categories that suits investors’ needs, it offers any kind of investment with any kind of risk.
  3. Transferability: Investors can switch among funds offered by a fund company; this would help investors to change funds according to the market needs.
  4. Income choice, some mutual funds return interest and some return dividend.

You can make money from an investment in two ways. You can sell it for more than you paid for it or you can receive regular income from your investment.

Investors can choose from a wide variety of mutual funds such as:

  1. Growth Funds: These funds invest in stocks that seek long term growth first and current income second
  2. Income Funds:  These funds provide regular stream of returns to the investor. It is considered the safest type of investment.
  3. Combined Growth and income funds: Funds that grow and give you a steady income.

There are also different kinds of funds that belong to either the Growth funds or the Income funds such as

  1. Money Market funds
  2. Mortgage Funds
  3. Bond Funds
  4. Equity Funds
  5. International and global Funds
  6. Real Estate Funds.
  7. Index Funds
  8. Clone Funds

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