If you are saving for something in the distant future, for instance, five or more years from now, it’s worth considering investing your money. Investments allow you to gain a return on your money, also referred to as a profit. If you’re thinking about investing your money, there are three different types of investments for you to consider: ownership investments, lending investments, and cash equivalents.

Ownership Investments

Ownership investments are most often what people think of when they hear the word “investment.” These include stocks, businesses, real estate, and precious objects, among other items. Ownership investments tend to be the most volatile and risky investments, because they depend on constantly changing economic conditions. For instance, when you purchase a stock, you become an owner of a portion of a company. You then have a right to that portion of the company’s value, which may increase, decrease, or stay the same over time. The price of stocks is driven by demand for shares in that company. Companies that are doing well – turning a profit, expanding, increasing their clients – will increase the value of their stocks over time. Similarly, when you invest in a business, real estate, or gold, the value of what you own will change over time.

Lending Investments

Lending investments do not carry as much risk as ownership investments. As a result, they also involve less potential for profit. Opportunities for lending investments are often offered by banks and companies – you’re the lender. For instance, even when you put money in a savings account, you’re more or less lending that money to the bank for a period of time. The bank is then able to give that money out to other clients in the form of loans. Similarly, bonds are a way of lending money to a company for a period of time. The company uses that money to grow their business and the value of the money leant increases over time. Since bonds are more stable investments than stocks, they tend to provide lower returns.

Cash Equivalents

A investment that’s referred to as a “cash equivalent” will always convert back to money. One example is money market funds, which provide a small return, usually between one and two percent of the money you invest.

Not surprisingly, the risk of investing in money market funds is also quite small. In addition, when you invest in a money market fund you may have easier access to your money than you would if it were, say, locked in stocks or bonds.

Non-Investments

It’s become fairly common for people to refer to big-ticket purchases as “investments.” For instance, in purchasing a new TV, you could say you are investing in your own entertainment. However, it’s important to keep in mind that actual investments always have some kind of financial gain – a new television does not increase in value over time. In fact, it will decrease. Unless you are able to resell the item and make a profit after a period of time has elapsed, it’s not an investment in the monetary sense.