The term "investment" refers to many different things. For some, personal investments refer to retirement accounts while others think of real estate. Between banks, securities, property and collectibles, investors should explore what options meet investment objectives and risk tolerances. Each type of investment has its own set of risk to consider and different levels of rewards for the risk.
Savings, money market and time certificates are among the most popular and simple personal investments found today. Banks are insured by the Federal Deposit Insurance Corporation (FDIC), providing a government guarantee protecting the investments. FDIC insurance covers any one tax identification number for up to $250,000 in deposits. IRA assets get another $250,000 in coverage, giving $500,000 total possible coverage at any one institution.
Savings accounts are liquid and used for emergency purposes, often having the lowest interest rates offered. Rates are adjusted and not guaranteed. Money market funds offer slightly more interest but also have more restrictions. Account owners may only conduct six transactions per month based on FDIC regulations. Time certificates offer a fixed rate of return over the course of the contract that may range from one month to three years. On a normal yield curve, the longer the term, the higher the rate.
Securities and Commodities
Securities include stocks, bonds and mutual funds. Commodities include futures contracts for items like precious metals, grains, meats and crude oil. These types of personal investments may be used to fund retirement accounts or as general personal savings. There are various levels of risk when looking at these types of investments. For example, a U.S. Treasury Bill is a government-issued bond with relatively little risk and low returns. Major corporate stocks fluctuate in value and have risk to principal assets. Technology companies or foreign stocks have higher risk, including currency exchange risks, and therefore fluctuate more. Stock market investments are not FDIC insured.
For some, buying a house may be the single largest investment and asset in their lifetime. Real estate does fluctuate and is difficult to liquidate in a hurry, but offers equity ownership over time. As mortgages are paid down, owners have the ability to access capital through equity lines of credit or second mortgages. Real estate is often a practical investment by those who no longer want to pay someone else rent. There is also a lot of real estate purchased strictly for supplementary investment purposes.
Collectibles are not often thought of when talking about investments, except by those who are collectors. Those who don't understand what makes a coin or painting valuable may become targets of scams, forgeries or stolen property. Those who do understand collectibles are able to recognize and confirm the value of an item. Collectibles are not easily liquidated in times of financial need but are an investment many people choose to make based on personal passions and cultural experiences.