Understanding your investment options can help you make smart choices about where to invest your hard-earned money. There are many different types of investments, including stocks, bonds, mutual funds and exchange-traded funds, or ETFs. But before you dive in, it’s important to understand the risks and rewards of each.

Stocks offer potentially higher investment returns than bonds or cash, but they’re also more volatile. That means that the investment returns you get could be up or down on a regular basis, and you may lose money if you sell your shares too soon or at the wrong time.

Understanding Your Investment Options: A Beginner’s Guide

With the right research, you can choose stocks that have a history of paying out dividends for at least 25 years, known as “dividend aristocrats.” That way, you’ll have some income coming in even when the company’s share price is down.

Bonds are a popular source of income because they pay interest. When you buy a bond, you are essentially lending your money to the issuer, which can be a government, municipality or a company. They agree to give you your money back at a certain date, called maturity.

Investors can purchase bonds directly from the issuer or through a fund. A fund pools your money with other people’s to buy a variety of assets, such as stocks, bonds and cash, which reduces the risk that any one asset class will do poorly. But be wary of funds that focus on particular sectors, markets or industries; they may carry more risk than a well-diversified fund.