How do you know which type of investment to place your money into?
The answer to that question is easy – it all depends on when you're going to need access to your money. Do you need a safe place to put your money in case of an emergency? Maybe you're saving up money for a new car and want to earn more than bare-bone interest? Are you trying to invest in your retirement?
Each reason requires a different type of product with different payout times:
If you are trying to build up an emergency fund…then a savings account would be best suited for your needs. These sorts of accounts allow you to have access to your money at any time, so if your car's muffler blows, you can pay off the mechanic without having to wait for investments to be sold.
Make sure to compare the interest rates of not only local but online banks like ING Direct. Different banks have different rates and shopping around could mean the difference between keeping up with inflation or falling behind.
If you are saving up money for a large purchase like a home or car… look into a money market account or money market mutual fund. Not only do these have great growth opportunities if you find the right money manager, but they give you more flexibility and access to your money than long-term investment opportunities like real estate or stocks.
If you want to make some money but don't need access to the funds for more than five years…. then individual stocks and bonds or a mutual fund could be the right road for you and your money. History has shown that the longer you commit to an investment, the better the payoff usually is, so be ready to "set and forget". Markets will go up and down and if you sell with every rollercoaster ride the market makes, you won't get very far in your investment plan.
For very long term investment opportunities, you might want to look into buying real estate – the payouts might be good if you picked the right part of town but it may take decades for a piece of property to fulfill its potential.
f you are saving money for your retirement…look into one of the many retirement planning programs out there – like your company's 401k, TSP, or an IRA plan. These give you some great tax deferment options that you don't have when investing in plain stocks and bonds.
IRA's and 401K's are also a "set and forget" sort of investment - you do the initial set up and leave it alone, feeding it money whenever you can. Most companies and investment firms allow you to automatically allocate so much of your paycheck into these accounts each month, making it super easy to save for your future. Check with your employer to see what is available.