The following is a guest post by HongKong.

Before you select the types of investments you prefer, you should understand your investor type.  The following categories of investors are based on the risk tolerance and other factors like age profile, investment return time frame, your personality and how you handle risk.

1. The Conservative Investor – My wife is an typical example of conservative investor. A conservative investor will have a minimal risk tolerance.  With minimal risk comes minimal and usually fixed returns. Types of investments which fall under the category include fixed deposits, money market accounts, government bonds, and certificates of deposit. Even though the risk is relatively small as compared to other investments, there is a hidden risk, which from my point of view is even higher…the risk of inflation. Inflation may just quietly “erode” your capital in long run.
2. The Moderate Investor – You strive a balance in investments by carefully selecting manageable risk with relatively high rate of return as compare to other investments. Types of investments which fall under this category include mutual funds, bonds, stocks, and real properties.
3. The Aggressive Investor – Aggressive investors can tolerate market swings and are seeking the greatest possible return for every dollar invested.  They have no problem with the speculative stocks, futures or junk bonds. Types of investments include options, stocks, bonds, commodities, and many more.

I am not surprised to find that most of the new investors fall under the aggressive investor category with a tolerance for greater risk…

(*The risk of stocks, bonds and real properties depend on the variety of factors on the selection and criteria of investment)

Types of investments:

1. Saving Accounts – The only risk that I wish to highlight for such investments is that of inflation.
2. Certificates of Deposit and Fixed Deposit – It depends on the time period of investment, the longer the period you invested, the higher the rate of return offered. However, inflation will always be the risk!
3. Money Market Account – This type of investment offers slightly higher interest rate as compare to a normal savings account…and easy access to your money as compared to certificates of deposit and fixed deposit. Therefore, the rate of return ranges in between the savings account and certificate of deposit.
4. Stocks – A portion of a company is called a stock. There are 2 types of stocks, common and preferred.
5. Bonds — Bonds are a kind of loan that is made by a government entity (federal, state, or municipal) or a corporation. There are various types of bonds: municipal bonds, mutual funds, high yield bonds, insured bonds, zero coupon bonds and savings bonds.
6. Real Properties — Investing in real properties can be risky and has a variety of complications including location, general facilities of the area, government policy and development planning etc.
7. Commodity — Commodities are products with value, uniform quality and produced in mass. Generally, commodities are basic resources including crude oil, iron ore, coal, sugar, soybeans, minerals (like silver, gold, aluminium etc), rice and wheat.

Knowing the types of investments or your investor type is not a guarantee of return or risk. Know yourself, plan your way through investments and change your daily habits of spending.