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Understanding how they work can allow you to be more intentional with your investment strategy — and help you diversify your portfolio along the way. Interest income—from sources like bonds, certificates of deposit (CDs), and money market accounts—is generally taxed at your ordinary income rate. Because of this, interest-earning investments may be less tax-efficient in taxable accounts.
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A retirement plan is an investment account with certain tax benefits, where investors invest their money for retirement. There are several types of retirement plans, such as workplace retirement plans, sponsored by your employer, including 401(k) plans and 403(b) plans. If you don’t have access to an employer-sponsored retirement plan, you could get an individual retirement plan (IRA) or a Roth IRA. The term “equity” covers any kind of investment that gives the investor an ownership stake in an enterprise.
Exchange-traded funds (ETFs)
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Nowhere is this more urgent than in the digital economy, wheregaps in infrastructure, skills, and policy risk leaving many countries behind. In general, lower risk yields lower returns, while higher risk yields higher returns. You can make investments in stocks, bonds, real estate, precious metals, and more.
Investors sometimes buy commodities as a hedge for their portfolios during inflation. You can buy commodities indirectly through stocks and mutual funds or ETFs and futures contracts. A mutual fund is a pool of many investors’ money that’s invested broadly in a number of companies. An actively managed fund has a fund manager who picks securities on behalf of investors. Because of this responsibility, fund managers often try to choose investments that will outperform a designated market index. The 20th century saw new ground being broken in investment theory, with the development of new concepts in asset pricing, portfolio theory, and risk management.
The most popular investments for those just starting out include stocks, mutual funds, exchange-traded funds and bonds. Because investing is oriented toward future growth or income, there is always a certain level of risk. An investment may lose value over time, a company may go bankrupt, or interest rate fluctuations may affect bonds or real estate investments. Investors can reduce portfolio risk with a broad range of investments. By holding different products or securities, an investor may not lose as much money as they are not fully exposed in any one way. Global foreign direct investment fell by 11%, marking the second consecutive year of decline and confirming a deepening slowdown in productive capital flows, according to the World Investment Report 2025.
Real Estate Investment Trusts (REITs) are one of the most popular in this category. REITs invest in commercial or residential properties and pay regular distributions to their investors from the rental income received from these properties. REITs trade on stock exchanges and thus offer their investors the advantage of instant liquidity. Risk and return go hand-in-hand in investing; low risk generally means low expected returns, while higher returns are usually accompanied by higher risk.