There are a variety of different methods available to invest in the stock market. However, what most people believe are a safe investment can actually be a LOSING investment over the long run.
So, before you invest another dollar in the stock market, it is best to know the various investment vehicles available.
1. Government Bonds, Certificates of Deposit, and Money Market Accounts
I lump all of these into one group because they are the least risky of all investments. Unfortunately, they are almost the worst performing investment as well. Why? Because these 3 investment vehicles pay a lower rate of return than most other investment vehicles. In February of 2006, a very good money market account or CD account may get 3.5% – 4.5% a year return on the investment, which is barely above the annual inflation rate of approx. 1.7%. But if you are primarily concerned with preserving your investment capital, these 3 traditionally do very well.
2. Corporate bonds
Corporate bonds can offer a better rate of return than government bonds, but of course, they are a bit more risky. For example, GE 14 year bonds are currently offering a 5.65% rate of return. The risk here is that GM could become financially unstable, and not be able to pay back the loan that the bond represents. However, a highly rated corporate bond is generally a safe investment.
3. Mutual Funds
Mutual funds, are in my opinion, the worst possible investment. Now, I know some mutual funds have a 30% – 40% return per year, and some even more. However, the fees involved are usually very high, and MOST mutual funds actually perform WORSE then the market indices do. The reason for this is in part, because of the management fees involved, as well as the restrictive trading as dictated by each mutual funds prospectus.
Mutual funds are not free to buy and sell any stock at any time that they choose. It must correlate to their investment strategy, even when they strategy is doomed to lose money!
For this reason, I steer clear of mutual funds these days.
Ah, stocks. Now this is where the fun starts. Stock trading is where you can start getting consistent returns of 20% – 100% or more a year. Sounds great … so what's the downside? Well, you can loose are your capital easier than in the previous 3 methods, and it takes a more active role on your part to achieve these returns. If you are interested in making more than 20% a year, I advise checking out BreakingWallStreet.com, and find the best stock picking system for you.
Options are actually above and beyond what most investors ever consider. In fact, most stock brokers and financial advisors have one thing and one thing only to say about trading options: they are too risky. And yes, they are even more risky than stocks, and should never be invested into non-discretionary money. HOWEVER, options can and do give returns of 100% – 200% in a single DAY. Once again, using a carefully planned out trading system, one can trade options with minimal risk for loss, and a great upside potential. Again, check into the various options systems advertised on the internet.
Keep in mind, that I am not a stock broker nor financial advisor, and before you invest in anything, you should always consult a financial advisor. You can lose all of your money by investing in what you do not know about. However, it is wise to know all your options, so you can decide how serious you are about investing, and be able to make the money you deserve!