Complete Guide to Popular Investment Types: 10 Options Ranked by Risk

Investing is a powerful tool for growing your wealth and securing your financial future. However, the world of investing can be daunting, especially for beginners. This guide will walk you through various popular forms of investing, ordered by complexity and difficulty, to help you get started on your investment journey. For related guidance, see our novice guide to financial independence and advanced financial strategies.

Highlights

• High-yield savings offer ~10x better returns: Best accounts pay 3.7-5% APY vs. 0.40% national average with zero risk and FDIC insurance up to $250,000
• Index funds crush active management: 92-95% of actively managed funds fail to beat their benchmarks over 15 years, while charging higher fees
• Forex trading has 70-90% failure rate: Multiple regulatory studies confirm less than 1 in 4 retail forex traders are profitable
• S&P 500 historical return averages 10% annually: Since 1926, the index has delivered 10% average returns (6.5-7% after inflation)
• Cryptocurrency experiences extreme crashes: Bitcoin has crashed 40-99% multiple times, including 84% drop from $20,000 to $3,200 in 2017-2018
• Real estate delivers 9-12% combined returns: Investment properties typically yield 5-8% rental income plus 3-5% appreciation annually

1. High-Yield Savings Accounts

Overview: A high-yield savings account is a type of savings account that offers a higher interest rate compared to traditional savings accounts. These accounts are typically offered by online banks and credit unions. As of November 2025, the best high-yield savings accounts offer rates between 3.7% and 5% APY (with top rates like Varo's 5% limited to balances under $5,000), compared to the national average of approximately 0.40%—meaning high-yield accounts provide returns roughly 10 times higher than traditional savings accounts.

Benefits:

Low Risk: Your money is insured by the FDIC (Federal Deposit Insurance Corporation) up to $250,000 per depositor, per insured bank, for each account ownership category. This limit remains unchanged for 2025 and has been the standard since the 2008 financial crisis.

Easy Access to Funds: You can access your money quickly and easily, making it a suitable place for emergency funds.

Higher Interest Rates: Compared to regular savings accounts (which average 0.40-0.63%), high-yield accounts offer substantially better returns, helping your money grow faster without additional risk. Online banks can offer these higher rates because they save on costs like branch maintenance and pass those savings to customers.

Considerations:

Interest Rate Variability: Interest rates can fluctuate based on market conditions and Federal Reserve policy. Rates peaked in late 2023 and have gradually declined as the Fed has adjusted interest rates.

Withdrawal Limits: Although the Federal Reserve suspended the federal requirement for withdrawal limits in April 2020 (previously six transactions per month under Regulation D), individual banks can still choose to impose their own limits and may charge fees of $5 to $15 per additional transaction if you exceed them.

Who It's For: Ideal for beginners who want a safe place to store their money while earning some interest. It's perfect for those building an emergency fund or saving for short-term goals.

2. Certificates of Deposit (CDs)

Overview: Certificates of Deposit (CDs) are time deposits offered by banks with a fixed interest rate and maturity date. You agree to leave your money in the account for a specified term, ranging from a few months to several years. As of November 2025, the best CD rates range from 3.50% to 4.30% APY depending on the term and institution (with some credit unions offering up to 5% for 12-month terms), while the national average is lower (1.97% for 1-year CDs and 1.72% for 5-year CDs).

Benefits:

Higher Interest Rates: CDs typically offer higher interest rates than regular savings accounts, though competitive high-yield savings accounts may sometimes match or exceed short-term CD rates. Rates peaked in late 2023 (with some 1-year CDs exceeding 5% APY) but have declined as the Federal Reserve has adjusted policy.

Low Risk: Like high-yield savings accounts, CDs are insured by the FDIC up to $250,000 per depositor, per insured bank.

Predictable Returns: The fixed interest rate ensures you know exactly how much you'll earn over the term, providing protection against rate decreases (though you also can't benefit from rate increases).

Considerations:

Early Withdrawal Penalties: Withdrawing your money before the CD matures usually incurs a penalty, often ranging from 3 to 12 months of interest depending on the CD term. For shorter-term CDs, the penalty might be 3 months of interest, while longer-term CDs (5+ years) may charge 12 months of interest or more. In some cases, penalties can exceed the interest earned, effectively reducing your principal.

Fixed Term: Your money is locked in for the term length, reducing liquidity. Consider CD laddering (buying multiple CDs with staggered maturity dates) to maintain some liquidity while benefiting from higher rates on longer-term CDs.

Who It's For: Suitable for conservative investors looking for a safe, fixed return over a set period. It's a good option for money you don't need immediate access to.

3. Bonds

Overview: Bonds are debt securities issued by corporations, municipalities, and governments to raise capital. When you buy a bond, you are lending money to the issuer in exchange for periodic interest payments and the return of the bond's face value at maturity. Bonds are rated by credit rating agencies—primarily Standard & Poor's, Moody's, and Fitch—to help investors assess creditworthiness.

Benefits:

Regular Income: Bonds provide regular interest payments, known as coupon payments, typically paid semi-annually.

Lower Risk: Bonds are generally considered less risky than stocks, especially government bonds (like U.S. Treasuries) and high-quality corporate bonds. Investment-grade bonds (rated BBB-/Baa3 or higher) represent the lowest-risk category of corporate bonds.

Diversification: Bonds can diversify your investment portfolio, reducing overall risk. When stocks decline, bonds often hold value or increase, providing portfolio stability.

Considerations:

Interest Rate Risk: Bond prices inversely correlate with interest rates; when rates rise, bond prices fall. This is because existing bonds with lower rates become less attractive compared to newly issued bonds with higher rates.

Credit Risk: The risk that the issuer may default on payments. Bonds are rated from AAA/Aaa (highest quality) down to D (default). Investment-grade bonds are rated BBB-/Baa3 or higher by S&P/Fitch or Moody's respectively. Bonds rated below this threshold (BB+/Ba1 and lower) are considered "high-yield" or "junk" bonds and offer higher yields to compensate for significantly elevated default risk. Banks are generally only allowed to invest in investment-grade bonds.

Who It's For: Ideal for investors seeking steady income with lower risk. Bonds are a key component of a balanced portfolio, especially for those nearing retirement or looking for more stable returns.

4. Stocks

Overview: Stocks represent ownership in a company. When you buy shares of a company, you become a part-owner and can benefit from the company's growth and profitability through dividends and capital appreciation.

Benefits:

Potential for High Returns: Historically, stocks have provided higher returns than most other investments. The S&P 500 index—which tracks 500 of the largest U.S. companies—has delivered an average annual return of approximately 10% since 1926. After adjusting for inflation, the real return has averaged 6.5% to 7% annually over the long term. However, it's crucial to note that this average is calculated over many decades, and annual returns vary dramatically year-to-year—often well above or below the 10% average.

Dividend Income: Some stocks pay dividends, providing a regular income stream. Qualified dividends are taxed at favorable long-term capital gains rates (0%, 15%, or 20% depending on income), making them more tax-efficient than ordinary income.

Ownership: Owning stock means having a stake in the company's success and potential voting rights on important issues (though voting rights are typically reserved for common stock, not all share classes).

Considerations:

Higher Risk and Volatility: Stock prices can be highly volatile, with potential for significant losses, especially in the short term. Individual years may see returns ranging from -30% or worse (as in 2008) to +30% or better. This volatility requires a long-term investment horizon to smooth out fluctuations.

Requires Research: Successful individual stock investing often requires researching and analyzing companies' financial statements, competitive positions, industry trends, and market conditions. Most financial experts recommend that the majority of investors are better served by low-cost index funds rather than trying to pick individual stocks.

Who It's For: Suitable for investors willing to take on more risk for the potential of higher returns. Stocks are ideal for those with a long-term investment horizon and the ability to weather market fluctuations.

5. Mutual Funds and ETFs

Overview: Mutual funds and Exchange-Traded Funds (ETFs) pool money from many investors to buy a diversified portfolio of stocks, bonds, or other securities. They offer a way to invest in a diversified portfolio without having to pick individual securities. Both can be either actively managed (where professional managers select investments) or passively managed (where the fund tracks an index like the S&P 500).

Benefits:

Diversification: By investing in a mutual fund or ETF, you get exposure to a wide range of securities, reducing the risk of individual investments. A single fund can hold hundreds or thousands of different securities.

Professional Management (Active Funds): Actively managed mutual funds are managed by professional portfolio managers who make investment decisions on your behalf. However, data consistently shows that the majority of active managers underperform their benchmarks. According to S&P's SPIVA (S&P Indices Versus Active) Scorecard for 2024, 65% of actively managed large-cap U.S. equity funds underperformed the S&P 500 Index. Over longer periods, the underperformance is even more pronounced: only 14% of active funds beat the S&P 500 over 10 years, and 92-95% failed to beat their benchmarks over 15 years.

Low-Cost Index Options: Passive index funds and ETFs that simply track market indices offer an alternative to active management, typically at much lower cost while often delivering superior long-term returns.

Accessibility: Both mutual funds and ETFs are accessible to individual investors and can be purchased through brokerage accounts.

Considerations:

Management Fees (Expense Ratios): All funds charge annual fees expressed as expense ratios. As of 2024, the average expense ratio for equity mutual funds was 0.40% and for bond mutual funds 0.38%, while ETFs averaged just 0.14% for equity and 0.10% for bonds. The difference is even more stark between active and passive funds: actively managed mutual funds averaged 0.89% while index mutual funds averaged 0.60%; actively managed ETFs averaged 0.69% while index ETFs averaged 0.48%. These seemingly small differences compound significantly over time—a 1% annual fee difference can reduce final portfolio value by 20-25% over 30 years.

Active vs. Passive: While actively managed funds charge higher fees with the promise of beating the market, the data shows that passive index funds consistently outperform the majority of active funds over the long term, while charging a fraction of the fees.

Market Risk: Both mutual funds and ETFs are subject to market risk, meaning their value can fluctuate with market conditions. Diversification within the fund reduces individual security risk but does not eliminate overall market risk.

Who It's For: Great for investors who want diversification with moderate risk. Index funds and ETFs are particularly suitable for cost-conscious investors and those who recognize that consistent market outperformance is extremely difficult to achieve. Given the data showing that passive index funds outperform the vast majority of actively managed funds over time while charging lower fees, most investors—from beginners to experienced—benefit from low-cost index funds as the core of their portfolio.

6. Real Estate

Overview: Investing in real estate involves buying, owning, managing, and renting or selling properties for profit. This can include residential, commercial, and industrial properties. Real estate has historically provided strong returns, with residential property appreciation averaging 3% to 5% annually nationwide (4.7% since 2000 according to the Federal Housing Finance Agency).

Benefits:

Regular Rental Income: Real estate can provide a steady stream of rental income, typically yielding 5-8% cash-on-cash return annually.

Appreciation: Properties can appreciate in value over time, leading to capital gains when sold. American homes have grown in value by 3.5% to 4% yearly since the 1970s, with some periods showing higher appreciation (nearly 6% between 2012 and 2022).

Combined Returns: When combining appreciation and rental income, investment property returns typically range from 9-12% annually. Historical data from 1870-2015 shows residential real estate averaged over 7% per annum, with roughly half from rental income and half from appreciation.

Tax Benefits: There are various tax advantages associated with owning real estate, including deductions for mortgage interest, property taxes, depreciation, repairs and maintenance, and the ability to defer capital gains through 1031 exchanges.

Considerations:

Significant Capital Requirement: Real estate investments typically require substantial capital for down payments (typically 20-25% for investment properties), closing costs, and reserves for vacancies and repairs.

Property Management: Managing properties can be time-consuming and may require dealing with tenants, maintenance issues, emergencies, legal compliance, and vacancies. Professional property management companies can handle these tasks but typically charge 8-12% of monthly rent.

Market Risk: Real estate values can fluctuate based on market conditions, local economic factors, interest rates, and neighborhood trends. The 2008 housing crisis demonstrated that real estate can experience significant declines. Properties are also illiquid—selling typically takes months, not minutes like stocks.

Who It's For: Suitable for investors with significant capital who want to diversify their investment portfolio and are willing to manage properties. Real estate is a tangible asset that can provide both income and appreciation.

7. Forex (Foreign Exchange)

Overview: Forex trading involves buying and selling currencies on the foreign exchange market with the aim of making a profit. This market is the largest and most liquid financial market in the world, with daily trading volumes between $6.6 trillion and $7.5 trillion as of 2024—several times larger than the New York Stock Exchange (which trades around $200 billion daily). Despite the market's size and liquidity, retail traders face exceptionally poor odds of success.

Benefits:

High Liquidity: The forex market has extremely high liquidity, allowing for easy entry and exit of trades with minimal slippage at most times.

Potential for High Returns: Forex trading can be highly profitable for the small minority of successful traders, especially when using leverage.

24-Hour Market: The forex market operates 24 hours a day, five days a week (Sunday evening through Friday evening in U.S. time zones), providing flexibility for traders across all time zones.

Considerations:

Extremely High Failure Rate: Multiple studies and regulatory disclosures consistently show that 70-90% of retail forex traders lose money. ESMA (European Securities and Markets Authority) reports indicate 74-89% of retail traders lose money trading forex and CFDs. The U.S. Commodity Futures Trading Commission (CFTC) data consistently shows 70-80% loss rates. Analysis of broker data suggests the average is approximately 76% of retail accounts losing money, meaning less than 1 in 4 traders are profitable.

High Risk and Volatility: Forex trading is highly speculative and can lead to significant losses, often exceeding initial investment when leverage is used.

Complexity: Requires a deep understanding of currency markets, global economic indicators, central bank policies, geopolitical events, and sophisticated trading strategies.

Leverage Risk: Forex brokers often offer leverage ratios of 50:1 or higher (even 500:1 in some jurisdictions), which can amplify both gains and losses dramatically. A small adverse price movement can wipe out your entire account when using high leverage.

Who It's For: Only for highly experienced traders who understand the currency markets and can afford to lose their investment. Given that 70-90% of retail forex traders lose money, this is not recommended for beginners or most individual investors. Many financial advisors recommend avoiding forex trading entirely in favor of more conventional investments with better odds of success.

8. Futures

Overview: Futures contracts are agreements to buy or sell a specific asset (such as commodities, currencies, or financial instruments) at a predetermined price at a specified time in the future.

Benefits:

High Leverage: Futures contracts allow for significant leverage, which can lead to substantial profits.

Hedging: Futures can be used to hedge against price movements in the underlying asset.

Diverse Markets: Futures are available for a wide range of assets, including commodities, currencies, and indices.

Considerations:

High Risk and Volatility: Futures trading involves high risk and can result in significant losses.

Complexity: Requires a thorough understanding of the underlying asset, market conditions, and trading strategies.

Margin Requirements: Futures trading typically requires maintaining a margin account, which can lead to margin calls if the market moves against your position.

Who It's For: Suitable for experienced investors looking to speculate or hedge against price movements in various assets. Futures trading is not recommended for beginners due to its complexity and high risk.

9. Options

Overview: Options are financial derivatives that give the buyer the right, but not the obligation, to buy or sell an underlying asset at a predetermined price before or on a specific date.

Benefits:

Flexibility and Leverage: Options provide flexibility in trading strategies and can be used to leverage positions.

Potential for High Returns: Options can offer significant returns if the underlying asset moves in the expected direction.

Hedging: Options can be used to hedge against potential losses in other investments.

Considerations:

Complex and High Risk: Options trading is complex and carries high risk, with the potential for significant losses.

Requires Knowledge and Experience: Successful options trading requires a deep understanding of options strategies, market conditions, and the underlying asset.

Who It's For: Best for advanced investors who understand options strategies and are willing to take on significant risk. Options trading is not recommended for beginners due to its complexity and high potential for losses.

10. Cryptocurrency

Overview: Cryptocurrency is a digital or virtual currency that uses cryptography for security. Bitcoin, the first and most well-known cryptocurrency, was created by the pseudonymous Satoshi Nakamoto. The genesis block was mined on January 3, 2009, with the bitcoin software released on January 9, 2009. The first bitcoin transaction occurred on January 12, 2009, when Hal Finney received 10 bitcoins from Nakamoto. Since then, the cryptocurrency landscape has exploded—approximately 10,000 cryptocurrencies are actively tracked as of 2024, though over 2.52 million have been created in total (with an average of 5,300 new tokens launched daily in 2024).

Benefits:

High Potential Returns: Cryptocurrencies have the potential for high returns, as seen with Bitcoin's rise from pennies to peaks near $69,000. However, these returns come with extreme risk and volatility (see considerations below).

Decentralization: Most cryptocurrencies operate on decentralized platforms using blockchain technology, reducing the need for intermediaries like banks and enabling peer-to-peer transactions.

Blockchain Technology: Cryptocurrencies are built on blockchain technology, which offers transparency (all transactions are publicly recorded), immutability, and cryptographic security.

24/7 Trading: Unlike traditional stock markets, cryptocurrency markets operate 24 hours a day, 7 days a week, allowing trading at any time.

Considerations:

Extreme Volatility and Crashes: Cryptocurrency prices can be extraordinarily volatile. Bitcoin has experienced multiple catastrophic crashes throughout its history:

• 2011: Plummeted 99% from $32 to pennies following the Mt. Gox exchange hack
• April 2013: Dropped 83% from $260 to $50
• December 2013: Lost 40% (from $1,150 to $694) when China banned Bitcoin
• 2017-2018: Crashed 84% from peak of $20,000 in December 2017 to $3,200 by December 2018
• 2021: Dropped 53% after reaching $64,000 in April
• 2021-2022: Declined 77% from peak of $69,000 in November 2021 to approximately $16,000 by November 2022

These boom-and-bust cycles demonstrate that cryptocurrencies can lose 50-90% of their value, sometimes in a matter of weeks or months.

Regulatory Uncertainty: The regulatory environment for cryptocurrencies is still evolving globally, which can dramatically impact their value and legality. Different countries have taken vastly different approaches, from bans to acceptance as legal tender.

Security Risks: Cryptocurrencies are susceptible to hacking of exchanges, loss of private keys (resulting in permanent loss of funds), scams, fraud, and regulatory seizures. Unlike bank accounts, cryptocurrency holdings are generally not insured or protected by government agencies. If you lose your private key or a hacker steals your cryptocurrency, there is typically no recourse for recovery.

Limited Track Record: Despite Bitcoin's 16-year existence, cryptocurrencies have a relatively short history compared to traditional investments, and their long-term viability remains uncertain.

Tax Complexity: Cryptocurrency transactions are taxable events in most jurisdictions. Every trade, purchase, or sale may generate capital gains or losses that must be tracked and reported, creating significant tax complexity for active traders.

Who It's For: Cryptocurrency investing is suitable for risk-tolerant investors who understand the technology and market dynamics. It's not recommended for conservative investors due to its high volatility and uncertainty.

Frequently Asked Questions

What is the best investment for beginners?

High-yield savings accounts and low-cost index funds are the best starting points for beginners. High-yield savings (3.7-5% APY as of November 2025) offer zero risk with FDIC insurance, while index funds provide market returns (historically 10% annually) with automatic diversification. Index funds are particularly recommended because 92-95% of actively managed funds fail to beat their benchmarks over 15 years, yet charge higher fees. Start with what you understand, then expand as you learn.

Are index funds better than actively managed funds?

Yes, for the vast majority of investors. Data from S&P's SPIVA Scorecard shows 65% of actively managed large-cap funds underperform the S&P 500 in any given year. Over 15 years, 92-95% fail to beat their benchmarks. Index funds also charge significantly lower fees (0.14% average for equity ETFs vs. 0.69% for actively managed ETFs). Lower fees combined with consistent performance make index funds superior for most long-term investors.

Is forex trading profitable?

For the vast majority, no. Multiple regulatory studies confirm that 70-90% of retail forex traders lose money. ESMA reports indicate 74-89% of retail accounts lose money trading forex and CFDs, while U.S. CFTC data consistently shows 70-80% loss rates. This means less than 1 in 4 traders are profitable. High leverage (often 50:1 or higher) amplifies losses, and the complexity requires deep understanding of global economics, making forex unsuitable for most investors.

How much money do I need to invest in real estate?

Investment properties typically require substantial capital: 20-25% down payment (e.g., $50,000-$62,500 for a $250,000 property), plus closing costs (2-5% of purchase price), and cash reserves for vacancies and repairs (typically 6 months of mortgage payments). Total upfront capital often ranges from $60,000-$80,000 for a modest investment property. Alternatively, REITs (Real Estate Investment Trusts) allow real estate investing with as little as the price of one share, often under $100.

Are cryptocurrencies a good investment?

Only for risk-tolerant investors who can afford to lose their investment. Cryptocurrencies experience extreme volatility with crashes ranging from 40% to 99%. Bitcoin alone has crashed: 99% in 2011, 84% in 2017-2018 (from $20,000 to $3,200), and 77% in 2021-2022 (from $69,000 to approximately $16,000). Security risks include exchange hacks, lost private keys (permanent fund loss), and no FDIC insurance. Regulatory uncertainty adds further risk. Conservative investors should avoid cryptocurrencies entirely.

What is the safest investment with good returns?

High-yield savings accounts and U.S. Treasury securities are the safest investments. High-yield savings offer 3.7-5% APY (as of November 2025) with FDIC insurance up to $250,000 per depositor, providing complete principal protection. For slightly higher returns with minimal risk, consider investment-grade bonds (rated BBB- or higher) or low-cost bond index funds. Short-term CDs (1-2 years) currently offer 3.5-4.30% APY with FDIC protection. While stocks historically return more (10% average), they carry volatility and are not "safe" for short-term needs.

Conclusion

Investing offers various opportunities to grow your wealth, each with its own level of complexity and risk. The key is matching investment choices to your knowledge level, risk tolerance, time horizon, and financial goals.

For Beginners: Start with simpler, lower-risk investments like high-yield savings accounts (currently 3.7-5% APY), CDs, and low-cost index funds. These provide a solid foundation while you learn about investing. The data strongly supports index funds for most investors—remember that 65% of actively managed funds underperform the S&P 500 in any given year, and 92-95% fail to beat it over 15 years.

As You Gain Experience: You can explore more complex options like individual stocks, real estate, and bonds. However, complexity doesn't necessarily mean better returns. The S&P 500's historical 10% average annual return (6.5-7% after inflation since 1926) through simple index investing has outperformed most complex strategies over the long term.

Avoid Common Pitfalls: Be especially cautious with high-risk, complex investments like forex, futures, and options unless you have substantial experience and can afford to lose your investment. The statistics are sobering: 70-90% of retail forex traders lose money. Cryptocurrency's extreme volatility—with crashes ranging from 40% to 99%—makes it unsuitable for conservative investors or those who can't afford significant losses.

Fundamental Principles: Regardless of which investments you choose, always:

• Diversify across different asset types to reduce risk
• Understand what you're investing in before committing money
• Consider fees and expense ratios—they compound dramatically over time
• Maintain a long-term perspective and avoid emotional decisions during market volatility
• Start with your risk tolerance and build a portfolio that lets you sleep at night

The path to building wealth through investing is less about finding exotic opportunities and more about consistent, disciplined investing in well-understood assets with reasonable fees. For most investors, a diversified portfolio of low-cost index funds, supplemented with bonds for stability and perhaps some real estate, provides an optimal balance of growth potential and manageable risk.