Stock Investments

Investing in the stock market involves considerable risk. An investor has no assurance of making money. Stocks are therefore high risk investments. In exchange for assuming a higher level of risk an investor has higher potential to make money. Risk can be defined as volatility. Stocks are volatile, prices increase or decrease in the market on a daily basis. Investors can mitigate the risk of stock investment through diversification. Diversification involves investing in multiple investments, reducing the risk of a single investment’s loss. Stocks are long term investments; their volatility reduces the likelihood of gain in the short term.

Government Bonds

Government bonds are bonds issued by the United States government or by states or municipalities. Bonds issued by the U.S. government are considered to be very safe investments. The risk factors are the same for government and corporate bonds; however, credit risk is lower for government bonds than for corporate bonds. Government bonds generally pay lower rates of interest than corporate bonds. The likelihood of default is also lower due to lower credit risk.

Money Market Investments

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