Beginner’s Guide to Investing: Types of Investments

This is part two in a series of articles for beginner investors. In part one, we covered why you should invest, and in part three, we discuss the importance of diversification. This article covers the different types of investments available and how they fit into a well-rounded portfolio.

Investing for the first time can be intimidating, which is why we are writing this series for beginning investors. Are you familiar with different types of investments? Just like any subject, investing has its own vocabulary. It can feel a little intimidating to ask basic questions of an expert. So here is a breakdown of different ways to invest your money and the results of making those choices.

For military members, understanding the different types of investments is especially important. The TSP already gives you access to several of these investment types through its core funds, but knowing how each type works helps you make more informed decisions about your overall financial strategy.

What Are Certificates of Deposit?

A certificate of deposit is a short-term, debt-based investment offered by a bank. Basically, you give your money to the bank, which lends it out to someone else in the form of a loan. You receive your money back plus interest, anywhere from three months to six years later. CDs are very low-risk investments, but they also offer relatively low returns.

Because these deposits are based on a set time limit, there may also be a penalty if you need to withdraw your money prior to the maturity date. Read more about using CDs as short-term investments in our article about how to build a CD ladder.

What Are Treasury Bills?

A treasury bill (T-bill) is a short-term investment offered by the government. The term is usually less than one year and typically three months. T-bills generally don’t pay interest, but you can buy them at a discount, meaning you profit the difference between the purchase price and the redemption value.

This means you actually buy the bond at less than face value and redeem it for face value upon the maturity date. T-bills are backed by the government and offer the closest thing to a risk-free investment available to any investor. However, their very low yield is a major drawback.

For military members, the TSP’s G Fund invests in a special type of U.S Treasury security that offers a return higher than standard T-bills while still being backed by the full faith and credit of the U.S government, making it one of the safest options within the TSP.

What Are U.S. Savings Bonds?

U.S. savings bonds can also be low-risk, low-return investments. They are a popular investment tool for individuals who want a safe place to invest their cash with a better return on their investment than a standard savings account. These bonds are often given as gifts to children, relatives or students. Unlike money invested in a savings account which is insured by the Federal Deposit Insurance Corporation, savings bonds are backed by the U.S. government.

While many consumers are familiar with savings bonds and the benefits associated with this type of investment vehicle, they often ask questions regarding how to redeem or cash in this investment.

What Are Bonds?

A bond is similar to a CD in that it is debt-based. Essentially, a bond is an IOU issued by a company. When you purchase a bond, you loan a specified amount of money for a specified number of years in return for interest on the investment. Bonds generally offer much higher interest rates than CDs or T-bills and offer relatively low risk.

However, they are long-term investments, which means that your money is tied up for anywhere from 10 to 30 years. If you need to sell your bond before it reaches maturity, the sale may result in a loss. Also, though bonds are relatively low-risk investments, it is always possible that the bond issuer may declare bankruptcy or otherwise default, meaning it is possible to lose money.

For military members, the TSP’s F Fund invests in a broad index of investment-grade U.S bonds, giving you diversified bond exposure without having to purchase individual bonds yourself.

What Are Stocks?

A stock is different from debt-based investments. When you purchase stock, you have in effect become a partial owner of a company and you get a piece of any profits known as dividends that the company allots to shareholders.

Dividend investing is a popular and proven way to invest in stocks, but if your stocks do not pay dividends, then you only make money if your stock increases in value. Unlike a bond, your return on investment is not guaranteed with a stock. Stock values fluctuate from day to day, which means that your risk is greater, as are your potential returns.

For military members, the TSP’s C Fund, S Fund, and I Fund provide exposure to domestic large-cap stocks, domestic small-cap stocks, and international stocks respectively, giving you broad stock market diversification without having to pick individual companies.

What Are Mutual Funds?

Mutual funds were created to allow investors to pool their money to buy a variety of investments and let a professional money manager determine the best use of the investors’ money. Mutual funds are an easy way to diversify your investments. However, actively managed mutual funds typically charge higher fees than passive alternatives. The average expense ratio for equity mutual funds was 0.40% in 2025, though actively managed funds can charge significantly more. Their performance also depends on how good your fund manager is.

What Are Index Funds?

Index funds are similar to mutual funds, they allow investors to pool their money to purchase stocks in a large number of companies, giving them the opportunity to invest in a variety of companies without buying hundreds of individual stocks.

The main difference between index funds and mutual funds is active management versus passive management. Mutual funds are managed actively, meaning the portfolio manager actively chooses which stocks to purchase based on the mutual fund goal. Index funds are managed passively, meaning the stocks in the index fund are based on a preset list of stocks. Most index funds track a market index such as the S&P 500 index, NASDAQ, Wilshire 5000, or similar stock market indices.

The goal of an index fund is simply to match the market as closely as possible while not charging investors as much in fees as some actively managed funds. For military members, the TSP’s C, S, and I funds are essentially index funds, they passively track broad market indices at extremely low expense ratios, making them one of the most cost-effective ways to invest in the stock market available to any investor.

What Are ETFs?

An exchange-traded fund, or ETF, is similar to an index fund in that it tracks a market index and holds a diversified basket of investments. The key difference is that ETFs trade on stock exchanges throughout the day like individual stocks, whereas mutual funds and index funds are priced once at the end of each trading day.

ETFs have become one of the most popular investment vehicles for beginner and experienced investors alike due to their low expense ratios, flexibility, and broad diversification. Like index funds, most ETFs passively track a market index, meaning lower fees and less reliance on a fund manager’s performance.

For military members, ETFs are a natural complement to the TSP. Once you have maxed out your TSP contributions, a Roth IRA invested in low-cost ETFs is one of the most effective ways to continue building tax-advantaged wealth.

What Are Real Estate Investment Trusts?

A Real Estate Investment Trust, or REIT, allows individual investors to invest in real estate without having to purchase or manage physical property. REITs pool investor money to purchase income-producing real estate such as apartment buildings, office spaces, shopping centers, and hotels, and are required to distribute at least 90% of their taxable income to shareholders as dividends.

REITs trade on major exchanges like stocks and can be purchased through most brokerage accounts. They offer a way to add real estate exposure to your portfolio without the significant upfront capital required to buy investment property directly.

What Are Annuities?

An annuity is a contract between an investor and a life insurance company. You deposit a sum of money in exchange for a guaranteed stream of income over a set period of time, or even for the remainder of your lifetime. Annuities are particularly useful for investors who want predictable, guaranteed income in retirement that they cannot outlive.

There are three main types of annuities – fixed, variable, and indexed – each with different risk and return profiles. For military members who already receive a pension, an annuity can serve as an additional layer of guaranteed income on top of a strong retirement foundation.

What Are Precious Metals and Commodities?

Many people feel the stock market is too risky and prefer to invest in a physical asset such as gold, silver, metals, or commodities. These options can be a good way to diversify your investments. However, like most investments, diversification is important. It may not be a good idea to maintain a portfolio that is 100% invested in precious metals.

Which Type of Investment is Best?

Each of these investments has its own set of pros and cons. They can all be appropriate for investors based on their individual investment needs. In most cases, it is a good idea to use a variety of different investment types in one portfolio.

For military members, the TSP provides a strong foundation that already incorporates several of these investment types through its core funds. Building on that foundation with a Roth IRA, real estate investments, or other vehicles gives you the diversification needed to weather market volatility and pursue long-term growth.

Ready to take the next step? Learn why diversification is essential in part three of this series.