If you missed Part 1, please read it. In that post I cover the lowest risk investing options, CD’s, your mattress and Savings Accounts. Today, let’s look at stocks, bonds, and money markets. While these three options are riskier, they can produce higher yields.

Stock Market: The two resources I consulted did not recommend this way of investing.  Dave Ramsey offers this piece of advice: “I do not own single stocks and do not suggest single stocks as part of your investment plan.  Single stock investors over long periods of time don’t consistently generate returns as high as mutual funds do.  If you really want to own a stock for some reason (company stock, for fun, etc.), limit single stocks to no more than 10% of your investment portfolio.” If you do choose to invest in stocks, it is critical to use a reputable broker.

Bonds: These are a debt instrument where an issuer (corporation, government, or municipality) owes you money, a form of an IOU. The issuer redeems the bond for the face value at a specified point in time (the maturity date). Typically the longer the maturity dates the higher the yield. They are a nice way to save for the long term, such as college. Bonds are very low risk, but can be confusing, so it is a good idea to visit with a professional before purchasing bonds. Grandma buys bonds for every special occasion.  However, Mr. Ramsey does not recommend this form of investing.

Money Markets: This is the method of investing Dave Ramsey promotes.  Money Markets are, by definition, a “mutual fund that seeks to maintain a stable share price and to earn current income by investing in interest-bearing instruments with short time maturities.” Basically, money markets take your money and invest it, they pay you a portion of the money they make by paying you a dividend.  This money is liquid so you can access it at anytime. This is good option for savings of more than $1000.

There are so many options out there. I would recommend seeking advice before making any decisions that will affect your long term financial situation.

For those of you who were curious, what did we do with our extra money? We opened up a money market account and have been very happy with that decision.
Photo by sufinawaz