Investments

Stocks

Also called equities, stocks are the cornerstone to most retirement accounts because they've boasted higher returns than many other investments, clipping along at an average 10.4 percent a year between 1925 and 2006, according to Ibbotson Associates.

That said, stocks come in many different flavors. They represent all industries, with some based in the U.S. and others overseas. Stocks also come in all sizes: There are large-cap, mid-cap and small-cap stocks. The term "cap" is short for "market capitalization," which is computed by multiplying share price by the number of a company's outstanding shares.

Bonds

When you buy a bond, you're essentially becoming a lender, since bonds are really nothing more than an I.O.U. that's been issued by a government or corporation.In general, bonds are considered safer investments than stocks. But that's not always true. It depends on the bond you buy. The riskier the bond -- that is, the lower a borrower's credit quality or "rating" -- the higher the interest rate and the more you stand to gain, unless, of course, the borrower defaults. Firms such as Standard & Poor's and Moody's are among agencies that determine if bonds are "junk" status, meaning they carry high risk, or "investment grade," meaning they carry little to moderate risk.
U.S. government bonds are guaranteed by Uncle Sam, so they're the safest around. They mature -- or come due -- in various time periods. Treasury bills generally mature in three months while Treasury notes typically mature within a year. Treasury bonds mature over longer time frames, usually between five and 30 years. Historically, long-term government bonds have returned an average of 5.4 percent annually, according to Ibbotson Associates.
http://www.bankrate.com/finance/retirement/stocks-bonds-and-mutual-funds-1.aspx 

Mutual Funds

A mutual fund is a type of investment company that pools money from many investors and invests the money in stocks, bonds, money-market instruments, other securities, or even cash. Here are some characteristics of mutual funds:

Investors purchase shares in the mutual fund from the fund itself, or through a broker for the fund, and cannot purchase the shares from other investors on a secondary market, such as the New York Stock Exchange or Nasdaq Stock Market. The price that investors pay for mutual fund shares is the fund’s approximate net asset value (NAV) per share plus any fees that the fund may charge at purchase, such as sales charges, also known as sales loads.
Mutual fund shares are "redeemable." This means that when mutual fund investors want to sell their fund shares, they sell them back to the fund, or to a broker acting for the fund, at their current NAV per share, minus any fees the fund may charge, such as deferred sales loads or redemption fees.
Mutual funds generally sell their shares on a continuous basis, although some funds will stop selling when, for example, they reach a certain level of assets under management.
The investment portfolios of mutual funds typically are managed by separate entities known as "investment advisers" that are registered with the SEC. In addition, mutual funds themselves are registered with the SEC and subject to SEC regulation.

There are many varieties of mutual funds, including index funds, stock funds, bond funds, and money market funds. Each may have a different investment objective and strategy and a different investment portfolio. Different mutual funds may also be subject to different risks, volatility, and fees and expenses. Fees reduce returns on fund investments and are an important factor that investors should consider when buying mutual fund shares.
http://www.sec.gov/answers/mutfund.htm

A savings account on the other hand is an account maintained by a customer with a depository institution for the purpose of accumulating funds over a period of time. Funds deposited in a savings account may be withdrawn only by the account owner or a duly authorized agent, or on the owner's nontransferable order. The account may be owned by one or more persons. Some accounts require funds to be kept on deposit for a minimum length of time, while others permit unlimited access to funds. Earnings may be in the form of dividends, as in the case of a share type savings account, or interest as in the case of a deposit type account. 

http://www.teachmefinance.com/Financial_Terms/savings_account.html 

 Three Tips for Investing:

1. Plan and then plan again: Committing yourself to a realistic investment plan requires understanding your resources and obligations, as well as the essential attributes of the lifestyle you desire in the future. As you plan your investment strategy, leave room for investment underperformance. Committing your plan to writing may force you to address issues that you might otherwise glide over. 
2. Consider the tax effect on withdrawals: Taxes may seem unavoidable, but you can control when to buy or sell assets. Be careful about buying into a mutual fund that is about to declare a dividend and, in the U.S., also about whether the interest earned on municipal bonds is potentially taxable (i.e., included in pre-tax income for the calculation of the alternative minimum tax). It may also make sense to draw from your after-tax accounts rather than tax-deferred accounts.
3. Stay liquid: If a fund requires the manager to approve of redemptions, you should understand that in a difficult environment, the manager may decline your request. Speak with your advisor about the balance between earning extra income and maintaining necessary liquidity. The liquidity characteristics of money funds, bank money market accounts and bond funds differ considerably. Each has a role for someone, but that person may or may not be you.  

http://www.forbes.com/2010/07/08/investing-advice-tips-personal-finance-rock-and-roll.html

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