How to Get the Most Out of 10 Common Investments

Plans

Retirement plans are not a discrete category for investment but are vehicles to purchase stocks, bonds, and funds. These include employer-sponsored plans such as 401(k) and 403(b) or an individual retirement plan (IRA), of either the traditional or Roth variety.

Plans

Retirement plans have tax advantages. They allow you to invest pre-tax dollars (such as with a traditional IRA) and not be taxed on the money until you start making withdrawals upon retirement. The risks for the investments within a retirement plan are the same as the risks outside of a retirement plan.

For the more sophisticated investor, options are an interesting investment product – referred to as a financial derivative. When you acquire an option, you are purchasing the right to buy or sell an asset at a certain price at a particular time. There are two types of options: call options to buy assets, and put options to sell them.

To make money off an option, an investor locks in the price of a security, say a stock, betting that it will increase or decrease in value – depending on whether it is a call or put option. For example, in a call option, one risk is that the stock could decline in value and since you wouldn’t exercise the call option, you would lose the money spent on the option contract. Depending on the option contract, however, the risks can be far greater, as these financial instruments can be very complex.

An annuity is a financial contract you can sign with an insurance company in which you pay a premium, either through a lump sum or periodic payments, in exchange for guaranteed payments to be made at a later date.