Summary Table of Personal Investments

The four characteristics of investments are listed for these types of investments in Table 3.


Type of Investment Rate of Return Risk Liquidity Tax Breaks
Bank Accounts Very, very low or none Very, very low Extremely Liquid None
Money Market Funds Very Low Very Low Very Liquid None usually
(Exception: some tax-free municipal bond funds)
Certificates of Deposit (CDs) Low Very Low Not Liquid, unless you pay a substantial penalty None
Bond Mutual Funds
Low to Moderate Moderate
(Interest Rate Risk) Moderate None usually
(Exception: some tax-free municipal bond funds)
Stock Mutual Funds
(Blue Chip Stocks) Low to High High Moderate You only pay taxes on capital gains when you sell stocks.
Stock Mutual Funds
(Aggressive Growth Stocks) Low to Very High Very High Moderate You only pay taxes on capital gains when you sell stocks.
Real Estate
(e.g., buying a house) Varies with location Varies with location Not liquid.
(It usually takes several months to sell a house.) Mortgage interest payments may be tax-deductible
Table 3. The characteristics of various types of personal investments.
Most financial advisors point out that over the long term, stocks historically have provided a higher rate of return than most other types of financial investments. Past performance, however, is no guarantee of future results. Nothing in this book should be construed as a recommendation to buy or sell any financial assets or investments or to deal with any particular brokerage firm or other investment company.