First, understand how each type of investment carries its own risks and potential gains. Generally, the more risk you assume the greater the chance of you seeing larger gains or losses. A few general types of investments:
Stocks. You buy a percentage of ownership of a public business. Stocks can be highly profitable and high-risk.
Bonds. Yielding little risk and usually low returns, bonds are like IOUs to you from companies or governments, to name two examples. Your return takes the form of interest paid back on the amount you lend (for our purposes, invest).
Mutual funds. These collections of assorted investments may comprise stocks, bonds, properties and other assets to create a balanced portfolio. Sometimes categorized according to the size or sector of companies whose stocks are in a given fund, mutual funds often blend both low- and high-risk investments.
Property. Buying, restoring, and renting or selling real estate can potentially net large sums. As with stocks, though, the market can whipsaw and factors such as taxes can take a big bite out of your returns. Look at trends in your area if you look to invest in property.
Certificates of deposit (CDs). These fixed-period investments, usually from banks or savings and loan associations, also rely on interest and carry a low risk.
Commodities. This category includes gold, silver, jewelry and precious metals. Like stocks, commodities are risky because value swings unpredictably.
Additional categories range from risky – think alternative investments such as artwork, or stocks from companies in emerging nations – to solid yet barely profitable, such as money market accounts paying barely 1% in interest.
Time factor. Your investment trends ought to change over the years, just as your financial needs do.
When young, you can learn the market from the ground up. Mutual funds probably provide your easiest approach to investments with a high-yield potential, familiarizing you with multiple investments. You also want – and can afford, thanks to time – a bigger slice of stocks than bonds in your portfolio, perhaps 70/30 or 80/20.
In middle age, you ought to sheer away from riskier investments. Back off the stocks and mutual funds and switch to safer, more predictable CDs and bonds. At this age you need to evenly balance stocks and bonds in your portfolio; don’t let stocks exceed about 55% of your holdings, and whittle equities to closer to 20% of your portfolio the nearer you get to retirement.
Your older years mean holding a clearly less-risky basket of assets: bonds, CDs, well-researched real estate, commodities such as gold and fixed income investments. Your portfolio needs about 35% or less in stocks and 65% or more in bonds.
And despite conventional wisdom that individual retirement accounts are best for the young, IRAs can give older investors instant tax benefits, as well as offer other advantages.
Golden years can also mean investing both time and money in precautions. Long-term care insurance, for instance, helps cover non-medical expenses such as everyday care if you become incapacitated. Seniors are also often a target for financial crime and scams.
In this as in other stages of life, find a good professional financial advisor for help.