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Basic Investment Types
How Your Investments Work Together
A well-diversified portfolio usually consists of a variety of investment types, each playing a different part in helping you meet your financial goals. As you develop your overall plan, it's important to understand the roles the three basic investment types play in your portfolio.
Cash (and cash alternatives)
Cash, and investments similar to cash, can play a key role in your investment portfolios by:
• Giving you quick access to cash when you need it
• Helping balance risk in your portfolio
• Providing investment returns
Learn more about cash and cash alternatives.
Fixed-Income Investments (such as bonds)
Including fixed-income investments in your portfolio may help:
• Provide current income
• Offset risk associated with other types of investments
• Preserve the assets within the fixed-income investment
However, when interest rates rise, the value of your fixed-income investments (such as bonds) tend to fall. Long-term fixed-income investments are generally more exposed to interest rate risk than short-term fixed-income investments. Learn more about fixed-income investments.
Stock (also called equities)
Investing in stocks provides an opportunity for:
• Growth in the value of your stocks
• Income from dividends offered by the companies you invest in
Stocks also face risk, especially market risk. In fact, the value of your stocks will fluctuate and may be worth more or less than their original cost when you sell them. Learn more about stocks.