Once you’ve saved money for investing, consider carefully all your options and think about what diversification strategy makes sense for you. While the SEC cannot recommend any particular investment product, you should know that a vast array of investment products exists—including stocks and stock mutual funds, corporate and municipal bonds, bond mutual funds, certificates of deposit, money market funds, and U.S. Treasury securities. Diversification can’t guarantee that your investments won’t suffer if the market drops. But it can improve the chances that you won’t lose money, or that if you do, it won’t be as much as if you weren’t diversified.  

Risk Tolerance   

What are the best saving and investing products for you? The answer depends on when you will need the money, your goals, and if you will be able to sleep at night if you purchase a risky investment where you could lose your principal. 

For instance, if you are saving for retirement, and you have 35 years before you retire, you may want to consider riskier investment products, knowing that if you stick to only the "savings" products or to less risky investment products, your money will grow too slowly—or given inflation or taxes, you may lose the purchasing power of your money. A frequent mistake people make is putting money they will not need for a very long time in investments that pay a low amount of interest. 

On the other hand, if you are saving for a short-term goal, five years or less, you don't want to choose risky investments, because when it's time to sell, you may have to take a loss. Since investments often move up and down in value rapidly, you want to make sure that you can wait and sell at the best possible time. 

Investment Products 

When you make an investment, you are giving your money to a company or an enterprise, hoping that it will be successful and pay you back with even more money.  

Some investments make money, and some don’t. You can potentially make money in an investment if:  

• The company performs better than its competitors.  
• Other investors recognize it’s a good company, so that when it comes time to sell your investment, others want to buy it.  
• The company makes profits, meaning they make enough money to pay you interest for your bond, or maybe dividends on your stock.  

You can lose money if: 

• The company’s competitors are better than it is.  
• Consumers don’t want to buy the company’s products or services.  
• The company’s officers fail at managing the business well, they spend too much money, and their expenses are larger than their profits.  
• Other investors that you would need to sell to think the company’s stock is too expensive given its performance and future outlook.  
• The people running the company are dishonest. They use your money to buy homes, clothes, and vacations, instead of using your money on the business.  
• They lie about any aspect of the business: claim past or future profits that do not exist, claim it has contracts to sell its products when it doesn’t, or make up fake numbers on their finances to dupe investors.  
• The brokers who sell the company’s stock manipulate the price so that it doesn’t reflect the true value of the company. After they pump up the price, these brokers dump the stock, the price falls, and investors lose their money.  
• For whatever reason, you have to sell your investment when the market is down.