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 There are many different types of investments which each hold their advantages and disadvantages. Below are a few common types of investments used.

Cash

These are a low risk investment and include money market funds, bank accounts and certificate of deposits. As they are low risk, they yield low returns. Money market funds work as mutual funds and are quite similar to the stock market. Where people buy and sell in the stock market, they buy and sell in the money market. Money market funds take your money and invest it in low risk, short term instruments. They then pay a portion of their earnings to you through dividends. Certificate of deposits are like bank accounts except when money is invested into them, they generally acquire higher interest when compared to normal bank accounts but the money has to be kept for a certain amount of time before it can be withdrawn.

A major advantage of a cash investment is that it is very secure. They rarely lose money and investments such as certificate of deposits are sometimes even insured by the government incase any money is lost. Another advantage is that they have are highly liquid, meaning they can be transferred into cash in a short time without none or minimal loss of value.

A major disadvantages of these investments is their minimal gain. As they are low risk, they yield low returns and many investors miss out on greater returns from other types of investments. Another disadvantage is inflation risk, in which as inflation occurs in the economy, your dollar is worth less and less. That is why you shouldn't keep large sums of money in cash investments or otherwise they should be kept short term.

Bonds

Bonds are basically a type of IOU (informal acknowledgement of debt) in which investors can consistently gain money. A bond can be quite similar to a mortgage in which the money borrowed is paid back as well as interest. The money you gain is from the interest and bonds are relatively low risk investments. Bonds are known as fixed-income securities because they provide a fixed amount of money if you hold on to them until maturity. For e.g. a bond has a face value of $5000, interest rate of 10% p.a. and a maturity of 5 years. You would earn 10% of $5000 per year for 5 years. This would amount to $2500 after the 5 years as well as the $5000 invested