Investing 101: Types of Investments & Which One To Choose

You hear from financial content creators all the time: “Hey, invest your money! Put your money to work today!” or “Get to work with your money—investing and working harder than you.” But nobody ever tells you what to invest in. And to somebody who’s brand new to investing, all these terms can make it hard to begin your wealth-building journey.

But do not fear—the Money Guy is here.

In this video, we’re going to go over some of the most common types of investments and where you can put your money to get your army of dollar bills working for you. We’ll be talking about the four main asset classes—those are stocks, bonds, mutual funds, and of course, exchange-traded funds (ETFs). And at the end, we’ll reveal one other subcategory of assets that we absolutely love. We’ll get into this toward the end of the video.

With that, let’s jump right in.

First up is the one you’ve probably heard the most about: stocks. These are shares of publicly traded companies. When you buy a stock, you are buying a small fraction of a single company. I want you to think about Apple, Walmart, Amazon, Nvidia, and so on. Ideally, over time, that company’s value—and thus the value of your stock—would also increase. When you sell the stock, that gain is the value you make from your investment, plus any income it also created.

But—stocks can be very high risk. While picking the right stock could supercharge your wealth, getting it wrong could also take you to zero.

Next up, the more conservative: bonds. A bond is a type of investment where the investor (that’s you) lends money to an institution for a fixed amount of time—or term. The institution then agrees to pay you back that loan, plus a certain amount extra. That extra is what we call interest.

The interest is often paid out to you throughout the loan. Then, when the loan term ends, the bond matures, and you’re given your loan amount back—plus any remaining interest payments they still owe you. The main upside of bonds is they tend to carry a lower risk of loss than stocks do. But with that, they often provide a lower return.

These next two asset classes are investments that group together small fractional holdings of multiple assets. These are mutual funds and ETFs. So, if a stock is like an egg, mutual funds and ETFs are like a whole carton of eggs.

These funds have built-in diversification since they hold multiple assets in a single fund. And given they tend to carry less risk than a single stock, they can be a great way to generate solid returns over a long period of time with less volatility. Rather than predicting that one business will succeed, buying a mutual fund or ETF means that you’re predicting a sector of the economy will flourish in years to come.

So both mutual funds and ETFs group multiple holdings together. But how are they different?

Well, ETFs trade throughout the day, similar to a stock. Mutual funds, on the other hand, are bought and sold outside of normal trading hours. There’s also a slight difference in how ETFs and mutual funds are structured from a tax perspective.

So what was that last super secret, special type of investment we mentioned at the start of the video? Drumroll, please…

It’s called an index fund.

If you’ve watched this show at all, this was no secret to you—we absolutely love index funds. Matter of fact, if you read Millionaire Mission, you’ll see I have a lot of my money in index funds.

Index funds are a specific type of fund that tracks what is known as a market index. This means that it tracks—or mimics—a special segment of the market. You’ve heard of the S&P 500, which represents the 500 largest publicly traded companies in the United States. An S&P 500 index fund is designed to track the performance of those companies, giving investors exposure to a broad slice of the market.

Now, you might think an index fund is entirely separate from a mutual fund or even an ETF—but that’s just not the case. In fact, both mutual funds and ETFs can be structured as index funds.

What makes index funds so appealing is their simplicity and efficiency. They’re typically passively managed, which keeps costs low, and they offer built-in diversification—making them an excellent choice for many investors.

So, we believe that no matter what type of account you’re funding—it can be a Roth IRA, a 401(k), we don’t care—we think index funds can be a great place to start.

For those who want an even simpler, set-it-and-forget-it approach, we suggest indexed target retirement funds. These are index funds that are automatically rebalanced as the retirement date of the fund approaches.

For example, in 2025, a 2030 target-date retirement fund will likely hold more bonds, as it focuses on minimizing risk of loss. While a 2065 target retirement fund will hold more stocks, as it’s focused on maximizing growth. The best part is you only have to know how much you want to invest and when you want to retire.

When investing, there are a lot of options out there to pick from. So knowing what you should invest in can be a difficult question to answer. While we’d love to give you an easy answer, in reality everyone has different needs, different goals, and different risk tolerances. So the mix of stocks, bonds, and other assets we’d suggest will be unique to you.

However, the great news for people early on in the journey is that your savings rate matters so much more than your rate of return when you start this journey of investing. That’s why we want you to keep your investments as simple as possible, so that you can focus on mastering your behavior and putting as much money into these accounts as soon as possible.

If you want to know where you can invest in all these different types of assets, you can check out our mini-show on types of investment accounts—right here.

If you haven’t already, give us a subscribe. We’d love to know who you are so we can join you on your wealth-building journey.