Chris Davis is an assistant assigning editor on the investing team.
Your investment options go far beyond just stocks. Here’s the what, why, when and how of choosing the best investments for you.
The term “investing” may conjure images of the frenetic New York Stock Exchange, or perhaps you think it’s something only meant for those wealthier, older or further along in their careers than you. But this couldn’t be further from the truth.
When done responsibly, investing is the best way to grow your money, and most types of investments are accessible to virtually anyone regardless of age, income or career. Such factors will, however, influence which investments are best for you at this particular moment.
For example, someone close to retirement with a healthy nest egg will likely have a very different investment plan than someone just starting out in their career with no savings to speak of. Neither of these individuals should avoid investing; they should just choose the best investments for their individual circumstances.
Here are 12 best investments for consideration, generally ordered by risk from lowest to highest. Keep in mind that lower risk typically also means lower returns.
1. High-yield savings accounts
Online savings accounts and cash management accounts provide higher rates of return than you’ll get in a traditional bank savings or checking account. Cash management accounts are like a savings account-checking account hybrid: They may pay interest rates similar to savings accounts, but are typically offered by brokerage firms and may come with debit cards or checks.
Best for: Savings accounts are best for short-term savings or money you need to access only occasionally — think an emergency or vacation fund. Transactions from a savings account are limited to six per month. Cash management accounts offer more flexibility and similar — or in some cases, higher — interest rates.
If you’re new to saving and investing, a good rule of thumb is to keep between three and six months’ worth of living expenses in an account like this before allocating more toward the investment products lower on this list.
Where to open a savings account: Due to lower overhead costs, online banks tend to offer higher rates than what you’ll get at traditional banks with physical branches. See our roundup of the best high-yield savings accounts to find one that fits your needs.
Where to open a cash management account: Investment companies and robo-advisors like Betterment and SoFi offer competitive rates on cash management accounts.
2. Certificates of deposit
A CD is a federally insured savings account that offers a fixed interest rate for a defined period of time.
Best for: A CD is for money you know you’ll need at a fixed date in the future (e.g., a home down payment or a wedding). Common term lengths are one, three and five years, so if you’re trying to safely grow your money for a specific purpose within a predetermined time frame, CDs could be a good option. It’s important to note, though, that to get your money out of a CD early, you’ll likely have to pay a fee. As with other types of investments, don’t buy a CD with money you might need soon.
Where to buy CDs: CDs are sold based on term length, and the best rates are generally found at online banks and credit unions. See the best CD rates right now based on term length and account minimums.
3. Money market funds
Money market mutual funds are an investment product, not to be confused with money market accounts, which are bank deposit accounts similar to savings accounts. When you invest in a money market fund, your money buys a collection of high-quality, short-term government, bank or corporate debt
Best for: Money you may need soon that you’re willing to expose to a little more market risk. Investors also use money market funds to hold a portion of their portfolio in a safer investment than stocks, or as a holding pen for money earmarked for future investment. While money market funds are technically an investment, don’t expect the higher returns (and higher risk) of other investments on this page. Money market fund growth is more akin to high-yield savings account yields.
Where to buy a money market mutual fund: Money market mutual funds can be purchased directly from a mutual fund provider or a bank, but the broadest selection will be available from an online discount brokerage (you’ll need to open a brokerage account).
4. Government bonds
A government bond is a loan from you to a government entity (like the federal or municipal government) that pays investors interest on the loan over a set period of time, typically one to 30 years. Because of that steady stream of payments, bonds are known as a fixed-income security. Government bonds are virtually a risk-free investment, as they’re backed by the full faith and credit of the U.S. government.