Savings and investment vehicles are basically different financial products that store value with the potential to gain value. When you start investing, it is good to become familiar with the more mainstream ones. I am experienced investor so I know many of these, but not all. For the ones, I am not familiar with, I am linking to other resources so you can read more about them.
Various Investment Vehicles
I categorized investment vehicles into four groups relative to their risk and reward potential.
Cash and Cash Equivalents
These are low risk investment vehicles that can be easily liquidated into cash, with mandatory holding period of 12 months or less. They typically provide very low return on investment, and little or no inflation protection.
Our family carry very little cash around preferring to use our credit cards with rewards when possible. We do have some cash in checking, savings, money market, and CDs for emergencies and regular expenses.
Here is the list of investments under the cash and cash equivalents group:
- Savings Accounts
- Certificates of Deposit
- Money Market Accounts and Funds
- Treasury Securities (Treasury Bills, Treasury Notes, Treasury Bonds, and Saving Bonds)
Low Risk Investments
The only thing we invest in personally from this group are Bond Funds and ETFs. We always have a small portion of our investment portfolio invested in bonds to as part of our asset allocation and diversification strategy.
Here is the list of investments under the low risk investments group:
- Bonds, excluding Junk Bonds
- Strip Bonds (Zero Coupon)
- High Quality Corporate Bonds
- Bond Funds and ETFs
- Bankers’ Acceptances
Moderate Risk Investments
The majority of our investments fall into this category of investment vehicles. They provide the best balance between risk and reward for long-term investing.
When I was a more active investor, I used to invest more in stocks than mutual funds. The majority of my stocks were blue chip stocks (i.e., DOW and S&P500 stocks). Now most of my investments are in low-expense mutual funds and ETFs; including about 5% in Commodities. Although investing in individual stocks can bring greater reward, it is also riskier. In the end, I found it better to diversify with funds and ETFs instead.
We don’t invest in REITs because we own our own home, plus 3 rental properties and two real estate private equity investments. Since our real estate portfolio is about 1.5 times our other investments, we figured it would be best to leave out REITs.
Here is the list of investments under the moderate risk investments group:
- Stocks, excluding Penny Stocks
- Stock Mutual Funds and ETFs
- Real Estate Investment Trusts (REITs)
- Real Estate Ownership and Rental Properties
- Precious Metals and Gems
- Royalty Trusts
As far as investing goes, we do not utilize any of these in our portfolio due to its high risk nature. Here is the list of investments under the speculative investments group:
- Futures Contracts
- Stock Options
- High Yield Bonds (Junk Bonds)
- Penny Stocks (Microcap Stocks)
- Inverse Funds and ETFs
- Leveraged Funds and ETFs
- Antiques, Stamps, Coins, Artworks, and other Collectibles
- Foreign Exchange Market (Currency, Forex, or FX)
- Hedge Funds
I hope this lesson helped my wife understand the various options she has when it comes to investing. I will have to think about next week lesson, but I will probably talk to her about which investment vehicles to use to achieve different financial goals.
There are also “investment” products that are offered by insurance companies. We stay far away from these since there are much better alternatives to these “investments”
- Whole Life Insurance
- Universal Life Insurance
There are many choices when it comes to investment vehicles you can choose to invest in. My personal preference is to stick with the core financial products like: savings, checking, CD, money market, stocks, mutual funds, ETFs, bonds, REITs, and real estate. You can do really well by focusing on these proven products without ever trying anything else on this list.
Pinyo is the owner of Moolanomy Personal Finance and a Realtor® licensed in Virginia and Maryland. Over the past 20 years, Pinyo has enjoyed a diverse career as an investor, entrepreneur, business executive, educator, financial literacy author, and Realtor®.