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Best Investment Vehicles for Your Risk Tolerance Level

Last updated 03/19/2024 by

Benjamin Locke

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When investing, it’s important to understand the difference between investment vehicles, their uses, and their correlation with risk. You want to choose a mix of stocks, bonds, and other investments that align with your risk tolerance, whether it is conservative, moderate, or aggressive. This mix will likely change over time, from more aggressive in the early days to more conservative as you near retirement.
Everyone will invest differently based on their financial goals and risk tolerance level. A common rule of investing is the greater the upside, the greater the downside. Can you stomach volatility on a regular basis with a long-term vision, or do you prefer modest growth with a lower risk of losing money? The combination of investment vehicles you choose, from stocks to bonds, CDs, and even cryptocurrency, will depend on your risk tolerance and how soon you need to withdraw the money. This article will take you through some popular investment vehicles and which ones you should choose, depending on how aggressive you want to be.

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Risk tolerance explained

You might have different risk tolerance levels at different times in your life. For instance, a person with a retirement plan that’s still 20 years away might start with a higher risk tolerance level. Once they meet their initial investment goals, they might switch to a portfolio with a less aggressive approach. Most financial advisors will categorize risk tolerance into three categories: aggressive, moderate, and conservative.


An aggressive risk tolerance means that you aim for the absolute best return while taking on the largest risk. Usually, people with an aggressive risk tolerance have a long time until retirement, money to play with (and potentially lose), and/or a solid understanding of the stock market. Equities and highly volatile alternatives like cryptocurrencies are considered staples of the aggressive risk tolerance diet.


Moderate risk tolerance is a balance of aggressive risk tolerance and conservative risk tolerance. A moderate risk tolerance portfolio will usually consist of stocks and a few higher-risk investments, balanced with low-risk asset classes such as Treasury bonds and CDs. A person with a long-term retirement plan might move from aggressive to moderate tolerance over time if they feel that they have made the return they need and want to lower their risk.


With conservative risk tolerance, capital preservation is the key and takes precedent over all else. A conservative risk tolerance allows people to protect the money that they already have while growing it, albeit slightly. CDs, bonds, and money market funds are cornerstones of a low-risk portfolio, and thus, a conservative tolerance portfolio will be heavy on these.

What is an investment vehicle?

An investment vehicle is a product or instrument, such as a stock or bond, purchased by investors who want a positive return. In addition to risk tolerance, here are some factors you need to consider when choosing an investment vehicle (or vehicles) that make up a portfolio.

Time frame and purpose

How long do you want to invest and what are your goals? Will you invest over time or in one lump sum? For instance, for a retirement portfolio, you might want to invest in the market over the long term. If you invest in the hope of saving for a down payment on a house, then you might have a different mindset. Furthermore, is the money locked for a certain period of time? Or can it be accessed without a penalty?


Liquidity, in a general sense, is how long it takes you to turn the money kept in an investment vehicle into cash. For example, U.S. Treasury bonds can be turned into cash in an instant. Real estate, on the other hand, can take time, particularly if the market goes down.

Pro Tip

It’s important to take note that everyone is looking for a positive return; this doesn’t mean the asset needs to move up in value for investors to make a profit. If you short a stock, hoping it goes down, and it goes down, you are still investing and gaining a positive return.

Allocating your investment portfolio

Here are examples of portfolios and their makeup, based on risk tolerance levels. Remember, these could be the portfolios of the same investor changing his investment structure over time, from a more aggressive portfolio to a more conservative structure.
Stocks/index fundsAlternative/cryptoForeign stocks Bond fundsMoney market/cash
Let’s review some common types of investments that you will want to add to your portfolio, depending on your level of risk tolerance.


These investment vehicles typically come with a lower risk, but may have lower returns as a result. You’ll want to include more of them in a conservative portfolio.

Certificate of deposit (CD)

Liquidity: Low
Time frame: Medium- to long-term
A certificate of deposit is one of the lowest-risk investments a person can make. In essence, you agree to lock your money up for a certain period of time and gain interest on that money. A certificate of deposit, or CD, will most likely be offered by a bank or credit union. For example, an investor might invest $100,000 in a CD that returns 4% over 10 years. After the 10 years, the investor is given their $100,000 (principal) +$48,024 (interest). CDs are among the lowest-risk investment vehicles in existence. You are guaranteed the principal plus your interest back with the amount insured by the FDIC (as long as it’s under $250,000).

Money market accounts

Liquidity: High
Time frame: Short
Money market accounts are highly liquid investment vehicles that pay a small amount of interest on the money invested. They will typically be housed within a bank or credit union and are also FDIC-insured like a CD or savings account. However, the interest rates are the lowest in the game and correlate directly to the current interest-rate environment. Money market accounts can be a good place to park spare cash while you wait to employ it in other investment vehicles. Think of them as slightly better than savings accounts.

Bonds and bond funds

Liquidity: Medium
Time frame: Medium- to long-term
The issuer of a bond collects money from an investor and agrees to pay the investor a portion of the interest on top of the principal when the bond matures. The price of that bond can vary over time. Bonds can either be bought or sold individually or through mutual funds and ETFs that offer a basket of bonds. On a retail investor level, most people will invest in blue-chip corporate bonds, such as General Electric, or U.S. Treasury bonds. The U.S. Treasury bond is one of the lowest-risk investments in the world, and the interest rate usually reflects this. A blue-chip corporate bond, like General Electric, or an ETF that holds corporate bonds will be slightly riskier.


Investors with a moderate risk tolerance level will want to choose a mix of investment vehicles with varying levels of risk. These investments will make up the majority of a moderate portfolio.

Stocks: ETFs and index funds

Liquidity: High
Time frame: Medium- to long-term
Exchange-traded funds, or ETFs, are pooled investment vehicles. They are a popular way for people to invest in the stock market without having to choose individual stocks or pay high fees for someone to manage their money. ETFs behave like stocks or securities in that they can be bought and sold on the stock market. ETFs are generally a basket of stocks that seek to replicate and track a benchmark index, such as the S&P 500 or the Wilshire 5000.
The fees on ETFs are lower than their mutual fund cousins, and as they are sold like stocks and bonds, they are among the most liquid investments. Most ETFs are linked to the stock market, which can be volatile over time, but typically trends up over the long term. ETF investors will look for a medium- to long-term hold on the ETF with this philosophy. Here you can see the S&P 500 from 1928 to 2022. Although there is volatility, it trends up over the long term.
You can also choose to invest in large-cap (companies with a market capitalization of $10 billion or more), mid-cap ($2-$10 billion), and small-cap ($300 million to $2 billion) stocks, and change up your mix of these stocks over time. You might choose to invest in some foreign stocks to expand your portfolio beyond the U.S.

Pro Tip

Target-date funds are time-specific funds with an entry and exit date, typically correlated to the person’s retirement age. These set-it-and-forget-it funds tend to comprise riskier assets at first, followed by more conservative ones later. For instance, the fund might start out consisting entirely of riskier stocks that offer potentially high returns. As time progresses, the fund might switch to more conservative assets, such as U.S. Treasury bonds.

Mutual funds

Liquidity: Medium-low
Time frame: Medium- to long-term
A mutual fund is an actively managed investment fund that pools money from multiple investors into an assortment of securities, typically stocks and bonds. Similar to an ETF, with a mutual fund, you don’t actually own the stocks and bonds outright. Instead, you invest in the fund, and the fund manager actively invests in the underlying portfolio on your behalf. Mutual funds are a popular investment for retirement — they dominated the pooled investment market before the creation of ETFs.
Mutual funds can incur early withdrawal penalties as well as tax penalties and thus should be invested within a long- or medium-term time frame. The downside of mutual funds is that they have higher fees and they can also be susceptible to mistakes by portfolio managers.

Real estate

Liquidity: Low to medium
Time frame: Medium- to long-term
Many people will buy real estate as a place to live but also as an investment. Real estate can be very promising in the right markets and allows you to use leverage to grow your wealth. This can increase your returns substantially. For instance, if you made a down payment of 30% for a home and its value increased by 30%, that’s 100% percent of your capital employed. However, risks in real estate can come in two forms: a drop in the market or a rise in interest rates if you have a mortgage. However, real estate with a medium- to long-term time frame tends to go up, as explained by this graph tracking U.S. housing prices since 2000 (including the crash of 2008).

Roth IRA

Liquidity: Low
Time frame: Long-term
A Roth IRA is an investment account that gives an investor significant tax advantages. One is not having to pay capital gains tax on the account when filing your federal income taxes. The focus of the IRA is to help people plan for retirement while giving some tax relief. An IRA can consist of a multitude of lower-risk assets, such as stocks, bonds, CDs, and ETFs. A Roth IRA can have significant penalties for withdrawing the money early. So it’s typically a vehicle with a long-term time frame.
If you’re ready to invest in a Roth IRA, these brokerages can help you get started.

SuperMoney may receive compensation from some or all of the companies featured, and the order of results are influenced by advertising bids, with exception for mortgage and home lending related products. Learn more

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These investment vehicles come with a high level of risk but a potential for big rewards. You will want to include more of them in an aggressive portfolio.


Liquidity: Medium
Time frame: Short-term
Cryptocurrency is a completely new asset class that has only been available for mass consumption in the past 10 years or so. You have your “blue-chip” cryptocurrencies, such as bitcoin and ether, and you have your less-established cryptocurrencies, such as neo. The more exotic the cryptocurrency, the higher the risk and the less liquid the investment. Even bitcoin and ether, although very liquid, are extremely volatile. With unknown government regulations yet to come and extreme volatility, cryptocurrencies should only be purchased by those with a stomach for high-risk tolerance. You can see the volatility in cryptocurrency in the graph of bitcoin below.

Pro Tip

The liquidity of an investment correlates to supply and demand. This is why there is such a difference in the liquidity of cryptocurrencies. Bitcoin and ether are extremely popular and thus extremely liquid. Most people can access them with a trading account. Rarer, more exotic cryptos aren’t nearly as liquid and, in some cases, can only be purchased using other cryptocurrencies such as bitcoin.

Foreign currency

Liquidity: High
Time frame: Medium-term
Investing in foreign currency is a great idea if you want to diversify out of your country of origin, as well as see indications of markets rising. The risk of investing in forex really depends on what type of forex you choose. For example, investing in the Japanese yen or the Swiss franc is not nearly as risky as investing in emerging market currencies like the Sri Lankan rupee. For example, the British pound went down considerably versus the U.S. dollar on the back of the financial crisis in January of 2009 at 1.39 USD = 1 GBP. By July of 2014, the pound was up to $1.71, which would have given the investor a nice return. Currencies can be volatile, however, and high risk tolerance is a must, along with various other forms of technical analysis.
Looking to save for retirement but don’t know where to start. Here is a selection of investment advisors that can help you out.

SuperMoney may receive compensation from some or all of the companies featured, and the order of results are influenced by advertising bids, with exception for mortgage and home lending related products. Learn more

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Which investment vehicle is best?

There is no one-size-fits-all best investment vehicle. For someone with a high-risk tolerance who wants to take advantage of short-term gains and possible volatility, then cryptocurrency might be a good option. For people looking for long-term investments to fuel retirement, stocks and bonds in mutual funds or target-date funds are better options.

What are the most common investment vehicles?

Stocks, bonds, ETFs, CDs, money market accounts, and mutual funds are some of the most common investment vehicles.

What is the best thing to invest in now?

There is no set “best thing to invest in” for any year. Your investment time frame, risk tolerance, and liquidity needs should dictate your investing method, not the year. A pooled investment vehicle and financial instruments, such as a mutual fund or ETF with a long-term horizon, are good investment options at any time.

How do investment vehicles work?

Investment vehicles work in different ways depending on the vehicle. Mutual funds, cryptocurrencies — even hedge funds and other investment companies — can be considered investment vehicles. The common denominator is that a buyer purchases or enters an investment vehicle with the idea of earning a profit.

What should a beginner invest in?

There isn’t a one-size-fits-all answer to this question. It all depends on the financial goals and risk tolerance of the investor. If the beginner investor also has is also long time horizon, then they should probably invest in high-return investment vehicles , then is usually smart to start with a substantial emergency fund in a savings account or money market account. OncA beginner should set themselves up with some low- to medium-risk investments to start, such as CDs or mutual funds. If you are saving for retirement, you could pick a target-date fund that automatically changes investments over time.

What is the safest investment with the highest return?

Unfortunately, when it comes to financial investments, there is no sure safe investment with a high return. There is traditionally a tradeoff between risk and return. You can choose an exchange-traded fund that tracks the S&P 500, for example, for a broad investment that will likely go up over the long term.

Key takeaways

  • Investment vehicles are products that people invest in with the hope of getting positive returns. Investors may have a conservative, moderate, or aggressive risk tolerance level.
  • Investors can choose different investment vehicles, such as stocks, bonds, CDs, and money market funds that suit their time frame, liquidity needs, and risk profile.
  • ETFs, mutual funds, bond funds, and target-date funds are popular long-term investment vehicles that offer stable and relatively lower-risk returns. Cryptocurrencies and real estate investments are higher-risk investments.
  • Many investors mix and match their portfolios to align with their goals and they will change the combination to be more conservative as they near retirement.

SuperMoney may receive compensation from some or all of the companies featured, and the order of results are influenced by advertising bids, with exception for mortgage and home lending related products. Learn more

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