Retirement planningEvaluate investments |  |
Generally, investments can be divided into three broad categories:
| - Cash equivalent funds — include guaranteed investment contracts*
issued by insurers and money market funds. Cash equivalent funds also can include
certificates of deposit, U.S. Treasury bills and corporate commercial paper.
These investments involve the least risk.
- Fixed-income funds — include short- and long-term corporate and
government bond funds rated according to the borrower's ability to repay the bond.
A fixed-income investment provides higher income than a cash equivalent investment
partly because you're making a longer term loan and partly because the borrower's
credit quality may not be first-rate. The lower the credit quality, the higher the
return potential. There is a higher risk of loss of principal with lower-rated bonds.
- Growth funds — include stocks and stock mutual funds, real estate,
precious metals and collectibles. Growth investments offer the highest potential
return of the three asset classes as well as carry a higher risk of loss to principal.
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Although the investment categories you select should be based upon your time horizon and tax
situation, the most crucial factors to consider are your financial objectives and risk tolerance.
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*Guarantee is based on the company's ability to meet its financial obligations. |
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