Cash
This class typically includes bank accounts,certificates of deposit with a time period attaching to it and money market funds.

Generally these are short term investments with relatively easy access.

Bonds
A bond is a loan (to usually either a government or a corporation) that pays interest during a fixed term.When the bond matures at the end of the term,the principal or investment amount is repaid to the owner of the bond.

Bonds used in conjunction with stocks can be particularly attractive for providing an income flow or "ironing out" volatility and thus balancing the portfolio.

There are many types of bonds ranging from treasury bonds, corporate bonds to bond mutual funds.

Stocks
When you buy shares of stock you purchase an ownership share of the company.

A stock is bought with the expectation of the price increasing or the corporation to provide a quarterly dividend income (a portion of its profits).

There are many types of stocks. A growth stock consists of stocks of companies whose earnings are growing at an above average rate.The stocks tend to be priced higher as a result.

A value stock is priced at a significant discount to a perceived value.

Stock mutual funds invest in stocks but vary depending on the individual fund’s objectives.Some may invest in well established companies others in younger growth oriented companies.

Fundamental concepts of investing
Some of the factors listed below may affect investment decisions:

Risk and volatility
A number of different types of risk can erode even the safest of investments.

• Inflationary risk
Assuming an inflation rate of 4% for the next 10 years ,if you have $100 today, 10 years from now inflation will have eroded that $100 so that it is only worth $68.

• Investment or credit risk is the possibility that a company backing a security will not be sufficiently profitable to remain in business.

• Interest rate risk is the fluctuation in the prices of some investments such as bonds, due to changes in prevailing interest rates.When interest rates rise,new issues of bonds come to market with higher yields than older securities, making those bonds worth less so their price goes down.When interest rates decline the reverse happens. If you have to sell your bond before maturity,it may be worth more or less than you paid for it.

Liquidity
These investments can be easily turned into cash.Typical examples are funds on short notice or money market funds.

Time horizon
Each individual has a different time scale with which to meet their financial objectives. Younger investors with more time on their side may be able to take higher risks because they have more time to offset any losses. With older investors a more conservative approach may be in order.

Diversification
The cliché "don’t put all your eggs in one basket" is particularly releveant to diversification. By spreading your investments you can effectively spread the risk.

Particular market conditions may affect you less if you are diversified over a range of different asset classes. Mutual funds are an effective way of purchasing a professionally managed and sufficiently diversified portfolio with relatively small monetary amounts.

Dollar cost averaging
Choosing the correct time to invest in the market is a challenge for even the most experienced fund managers let alone an individual investor.

By committing to regular investments such as monthly or quarterly frequencies investors can avoid the pitfalls of investing all of their money at one particular time. Instead they are able to spread the risk by investing in lower priced periods as well as more expensive times.

Investors can capitalise on falls in the market when prices lower by purchasing more units of the same fund for the same amount of money.

When the market rises they can capitalise on the number of units held by having bought them at the reduced price.

Value of time
The earlier you invest the longer you can potentially benefit from the effects of compounding growth. Tax deferred vehicles can considerably outperform taxable vehicles as the tax is deductible at the end of the investment program when you start taking withdrawals in the case of retirement programs.