7. Understanding Types of Investments in Retirement Plans

Understanding_InvestInvestment plans provide a variety of investment options. This section gives you an overview of some of the types of investment options that are typically offered and the underlying investments that are part of some options such as mutual funds or annuities. The more you know about investment options and vehicles, the better able you will be to work with a financial planner or to manage your own retirement accounts.

The many types of investment vehicles fall into two categories:

  • Investments in which you own an asset or a portion of one, also called equity investments. Equity or "ownership" instruments include shares of stocks or mutual funds, real estate, and other physical property such as art and collectibles (including gold coins, antiques, stamps, and the like).
  • Investments in which you loan money to a corporate or government entity for a fixed rate of interest for a fixed term. Such "debt" instruments include interest-bearing savings accounts, money market funds, certificates of deposit, government and corporate bonds, savings bonds.

To make the distinction between equity and debt investment vehicles easy to remember, some financial media like to call them "ownership" and "loanership" investments.

This chapter provides a very basic overview of several common types of investments that play a role in most investment accounts.

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