WEALTH MAGES When people talk about investing, they mean putting money to work so it can grow over time. There are several different types of assets that can be invested in, each with its own risks, rewards, and best use cases. Here is a breakdown of the main ones.
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1. Cash and Cash Equivalents
Cash investments are the most basic form of investing. Instead of letting money sit idle, it goes somewhere safe that still earns a little return. These include savings accounts, money market accounts, certificates of deposit (CDs), and treasury bills. A savings account lets deposits and withdrawals happen freely while earning some interest, whereas a CD locks money in for a fixed period — typically a few months to a few years — in exchange for a higher interest rate. T-bills are short-term government debt that matures in less than a year, so they behave more like cash than a long-term investment — though some people also classify them under bonds.
The trade-off is that the returns are low, but so is the risk. Money is stable and easy to access.
Most Americans actually keep their money here without even thinking of it as investing. Around 95% of Americans have a bank account, but the majority keep their money in regular checking or savings accounts that earn little to no interest — sometimes as low as 0.01%. That means their money is technically safe, but slowly losing value over time due to inflation.
Cash investments are a good starting point for those new to investing, needing a place to park money that might be needed soon, or wanting a portion of money somewhere safe while figuring out what to do with the rest.
One option worth knowing about is the Fidelity Cash Management Account (CMA). It has no fees, no minimums, no ATM fees worldwide, and no foreign transaction fees. Its interest rate tracks closely to the federal funds rate, meaning significantly more is earned compared to what most traditional banks offer. If traveling or living abroad, withdrawing local currency from an ATM using Fidelity CMA is also cheaper and more convenient than using money transfer services like Western Union, Wise, or Remitly.
2. Stocks (Equities)
When a stock is purchased, it represents buying a small piece of ownership in a company. If the company does well, the share grows in value and generates a return. If it does poorly, the share loses value. Some stocks also pay dividends, which are small regular cash payments to shareholders, kind of like a bonus for holding the stock.
Stocks are one of the most popular ways to invest. Around 58% of Americans own stocks in some form, whether directly or through retirement accounts like a 401(k) or IRA.
Historically, stocks have delivered the highest long-term returns of any asset class; the S&P 500 averages around 7–10% per year after inflation, which doubles in value every 7 years. However, they also come with the most day-to-day volatility. Prices can swing dramatically based on company performance, economic news, or even public sentiment.
Stocks can be invested in a few different ways. Individual company stocks can be picked directly, index funds track the whole market as a bundle, or ETFs (exchange-traded funds) are bundles of stocks that can be traded like a single stock. For most beginners, index funds and ETFs are a simpler and less risky way to get into stocks without having to pick individual winners.
Stocks are generally a good fit when there is a longer time horizon — meaning the money is not needed for at least five years or more — and there is comfort with the value going up and down along the way.
3. Bonds (Fixed Income)
A bond is essentially a loan made to a government or company. In return, the borrower promises to pay back the loan amount on a set date, plus regular interest payments along the way. Bonds are often called “fixed income” because the interest payments are predictable and fixed.
The U.S. bond market is one of the largest in the world, valued at over $50 trillion. Despite this, individual bond ownership among everyday Americans is relatively low compared to stocks — most exposure to bonds comes through retirement accounts and mutual funds.
Bonds are generally considered safer than stocks because the payments are predictable and bondholders get paid before stockholders if a company goes under. However, they also deliver lower returns over the long run. The average return on U.S. government bonds has historically been around 2–3% per year after inflation, according to data from the Federal Reserve.
Bonds come in several types. U.S. Treasury bonds are issued by the federal government and are considered among the safest investments in the world. Municipal bonds are issued by state and local governments. Corporate bonds are issued by companies and tend to offer higher interest rates to compensate for higher risk.
Bonds are generally a good fit as a way to balance out a portfolio, reduce overall risk, or generate steady income — particularly as part of a long-term retirement strategy.
4. Real Estate
Real estate investing means putting money into property with the expectation of generating a return. This can come in two main forms — earning rental income from tenants, or buying a property and selling it later at a higher price, known as appreciation. About 1 in 7 Americans owns some form of investment property. The vast majority are regular individuals with one or two properties, not large corporations.
According to the Federal Housing Finance Agency (FHFA), U.S. home prices have historically appreciated around 4–5% per year on average, though after accounting for inflation the real gain is closer to 1–2%. When rental income is factored in, total returns can be higher. By comparison, the S&P 500 has historically returned around 7–10% per year after inflation, making stocks a stronger grower in pure return terms — though real estate offers the added benefit of a tangible asset and rental income potential.
Direct ownership means purchasing a physical property such as a house, apartment, or commercial building. This offers the most control over the investment but also requires the most capital, time, and management effort. A significant down payment is typically required — usually 20% for an investment property — along with ongoing costs such as mortgage payments, property taxes, insurance, and maintenance.
However, direct real estate investment comes with some real risks and challenges worth understanding. Home prices do not always go up — the 2008 financial crisis saw U.S. home prices drop by over 30% nationally, wiping out significant wealth for many property owners. Unexpected repairs can also be costly — a new roof, plumbing issues, or HVAC replacement can run anywhere from several thousand to tens of thousands of dollars. For rental properties, the risk of tenants not paying rent can leave the owner covering mortgage payments and expenses out of pocket. Evicting a non-paying tenant can be a lengthy and costly legal process depending on the state, sometimes taking several months before the property can be re-rented.
For those who want exposure to real estate without the hassle of direct ownership, Real Estate Investment Trusts (REITs) are worth considering. REITs are companies that own income-generating properties and trade on the stock market like a regular stock, making them far more accessible and liquid than owning physical property.
Direct real estate investment is generally a good fit for those seeking long-term wealth building and passive income, as long as sufficient capital, time, and the patience to handle the downsides are in place.
Real estate also tends to act as a hedge against inflation, meaning property values and rental income generally rise alongside inflation, helping preserve purchasing power over time.
5. Commodities
Commodities are raw materials or primary goods that can be bought and sold. These include precious metals like gold and silver, energy resources like oil and natural gas, and agricultural products like wheat, corn, and coffee. Unlike stocks or bonds, commodities are physical goods whose prices are driven largely by supply and demand in the global market.
Gold is the most widely known commodity investment. It has long been considered a safe haven asset — meaning investors tend to flock to it during times of economic uncertainty or market turmoil. Based on historical price data, gold has averaged around 6–8% annually in nominal terms over the past 50 years, though its performance can be highly uneven year to year. From 1980 to 2000 for example, gold was essentially flat for two decades while the stock market boomed.
For regular individual investors, there are a few practical ways to invest in commodities. Physical ownership means buying the actual commodity such as gold bars or coins — purchasing at Costco is a practical option as it stacks Costco cashback with credit card rewards, reducing the overall cost. Commodity ETFs and mutual funds are another accessible option that provide exposure to commodities without having to physically store or manage the asset.
One of the main reasons to include commodities in a portfolio is diversification. Commodity prices often move independently of stocks and bonds, meaning they can help cushion a portfolio when other assets are falling. They also tend to perform well during periods of high inflation, since the price of raw materials typically rises alongside the cost of living. That said, gold’s long-term nominal return of around 6–8% per year is significantly lower than the S&P 500’s historical average of around 12% per year over the same period. Gold is better thought of as a defensive asset — something that protects wealth during crises — rather than a primary vehicle for growing it.
However, commodities come with notable risks. Prices can be extremely volatile, driven by unpredictable factors like weather, geopolitical events, and shifts in global demand. Commodities also do not generate income like dividends or rent, so the only return comes from price appreciation.
Commodities are generally a good fit as a small portion of a diversified portfolio, particularly as a hedge against inflation or market instability, rather than as a primary investment.
6. Cryptocurrencies
Cryptocurrency is a digital form of currency that exists only online and is not issued or controlled by any government or central bank. Bitcoin and Ethereum are the most well-known examples, but thousands of cryptocurrencies exist today.
According to a 2023 survey by the Federal Reserve, around 7% of American adults held or used cryptocurrency in the past year. Younger generations tend to have higher adoption rates, with some surveys suggesting that over 20% of adults under 40 have owned crypto at some point.
Cryptocurrency can be bought and sold through digital exchanges such as Coinbase, Kraken, or Binance.
The potential returns have been extraordinary in some periods — Bitcoin for example rose from under $1 in 2010 to an all-time high of over $100,000 in late 2024. However, the losses can be equally dramatic. Bitcoin has dropped by 70–80% multiple times throughout its history, a level of volatility far higher than any traditional asset class.
Cryptocurrency also comes with unique risks beyond price swings. Exchanges can be hacked, accounts can be lost if passwords are forgotten, and government regulations around crypto are still evolving and could change significantly in the future.
Cryptocurrency is generally considered a high-risk, high-speculation investment. If considered at all, most financial experts suggest keeping crypto to a small portion of an overall portfolio — only with money that could be completely lost without affecting financial stability.
7. Alternative Investments
Alternative investments are anything that falls outside of the traditional categories of stocks, bonds, and cash. This broad group includes hedge funds, private equity, collectibles such as art, rare coins, vintage cars, and watches, as well as direct ownership of small or medium-sized businesses.
Most of these are harder to access, less liquid, and require more research than traditional investments. Hedge funds and private equity for example are typically only available to high net worth individuals.
Direct investment in a small or medium-sized business is one of the most potentially rewarding but also most demanding forms of investment. The returns can far exceed what the stock market delivers, but the risks are significantly higher — around 50% of small businesses close within five years according to the Bureau of Labor Statistics.
Alternative investments are generally best suited for those who have already built a solid foundation in traditional assets and are looking to diversify further or pursue higher potential returns.
How to Select the Right Investment
With so many options available, choosing where to put money can feel overwhelming. The right choice depends on a few key personal factors.
Time Horizon: The single most important factor is how long the money can stay invested before it is needed. Long time horizons of ten years or more open up higher risk options like stocks, since there is enough time to ride out market downturns. Shorter time horizons call for safer options like cash or bonds where the value is more stable and predictable.
Risk Tolerance: Different people have different comfort levels with seeing their money go up and down in value. Stocks and crypto can swing dramatically in short periods, which can be stressful for some. Bonds and cash are more stable but grow more slowly. Being honest about how much volatility is emotionally manageable is just as important as the numbers.
Financial Goals: The purpose of the investment matters. Saving for retirement in 30 years calls for a very different strategy than saving for a house down payment in three years. Matching the investment type to the goal helps avoid taking on unnecessary risk or being too conservative when growth is needed.
Existing Financial Foundation: Before investing in anything beyond cash, it is generally wise to have an emergency fund covering three to six months of living expenses, and to have high-interest debt such as credit cards paid off first. Investing while carrying high-interest debt rarely makes financial sense.
Diversification: No single asset class performs best all the time. Spreading money across different types of investments reduces the impact of any one investment doing poorly. A common approach is to hold a mix of stocks for growth, bonds for stability, and cash for liquidity, with small allocations to other asset classes based on personal interest and risk tolerance.