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Understanding investment types

Investment options

As you put together your portfolio, you'll need to do a little digging into the different types of investments. Here's help making sense of it all.
3 minute read

Points to know

  • Most investors divide their portfolios between stocks and bonds, with potentially a small cash portion.
  • There are many different types of stocks and bonds that offer various levels of risk and reward.
  • In addition to stocks and bonds, there are other kinds of investments that add additional risk and complexity, which may not be right for everyone.

Certificate of deposit (CD)

An insured, interest-bearing deposit that requires the depositor to keep the money invested for a specific period of time or face penalties. Brokered CDs can be traded on the secondary market.

Risk

Usually refers to investment risk, which is a measure of how likely it is that you could lose money in an investment. However, there are other types of risk when it comes to investing.

Portfolio

The sum total of your investments managed toward a specific goal.

Bond

A bond represents a loan made to a corporation or government in exchange for regular interest payments. The bond issuer agrees to pay back the loan by a specific date. Bonds can be traded on the secondary market.

Interest

Income you can receive by investing in bonds or cash investments. The investment's interest rate is specified when it's issued.

Income

The interest and dividends generated by an investment.

Stock

Usually refers to common stock, which is an investment that represents part ownership in a corporation. Each share of stock is a proportional stake in the corporation's assets and profits.

Diversification

The strategy of investing in multiple asset classes and among many securities in an attempt to lower overall investment risk.

Cash investments

"Cash" investments like money markets and CDs have the least risk of all investment types. They can be used to hold money you're waiting to invest or to lower the overall risk of your portfolio.

Use cash investments for safety & security

Bond investments

Companies and governments issue bonds and then pay interest to their buyers. You can buy bonds to get income and to temper the risk of stock investments.

Use bonds for income & additional stability

Stock investments

You can own pieces of companies through stocks, giving your portfolio the chance to gain value over time.

Use stocks to add the opportunity for growth

DOMESTIC OR INTERNATIONAL?

The United States isn't the only place to find stocks and bonds. You can get even more diversification by looking beyond our borders.

Invest internationally

Other kinds of investments

Your portfolio will probably be mostly made up of stock and bond investments, and potentially some cash. But there are other types of assets you might want, depending on your goal and how sophisticated your investment strategy is.

Learn about "hybrid" securities

Get information about call options & put options

Understand alternative investments

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If you'd like some help with your investing decisions, here are a couple of ways you can get the answers you need.

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*Source: Francis M. Kinniry Jr., Colleen M. Jaconetti, Michael A. DiJoseph, David J. Walker, & Marcia C. Quinn, 2022. Putting a value on your value: Quantifying Vanguard Advisor's Alpha®. Valley Forge, Pa.: The Vanguard Group.

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