Deciding how to invest your money is always challenging. You’ll want to do extensive research before plunking down any amount of cash in an investment. In this article, we’ll discuss the pluses and minuses of both cash investments and stock investments.

Cash investments, by definition, are investments that you can liquefy into cash immediately and simply. Checking accounts, savings accounts, and money market accounts are all considered cash investments.

Checking and savings accounts work well for cash reserves you want to be able to access in case of an emergency. You get a set return on your investment as interest accrues, and you can withdraw the money at any time.

Money market accounts are considered completely safe investments. A money market account is a mutual fund backed by the U.S. Government. You can withdraw your money at any time, but do watch for fees.

CDs (certificates of deposit) are other cash investments with low but guaranteed returns. If you need to take the money back out in a relatively short period of time, you might want to find a CD with a decent rate and just let your money grow that little bit before you use it.

Cash investments are certain, which is why some people prefer them, but stocks offer much higher returns – along with much higher risks.

When you invest in a stock, you purchase a share of the company. If that company does well, the value of your stock will increase, so when you sell back the stock, you can take out a significantly higher amount of money than you first invested.

But what if the company doesn’t do well? If the company goes out of business, you could lose all your investment in that stock. If the company stock remains at the same value, you will not gain or lose at all (except if you have pay a fee for the transaction – then of course you lose that fee.)

Stocks are best for long-term investments. They are volatile (some stocks are more stable than others) and unpredictable. Many people make livings off telling people they can predict the stock market, but even very educated experts make mistakes or wrong predictions. Truly risky people try to do something called day trading, where they buy stock and turn it around in a matter of hours or days, trying to make high profits off volatile stock. These people can experience fabulous gains – or terrible losses – in a day. It all depends on how the company performs and how the public responds to company performance – which is not always as logically linked as you might hope. The result is investing is stocks is risky business, dependent on many factors out of your control. That’s why it’s never wise to invest all your money in stocks.

Most people diversify their investments, meaning they invest in many different types of accounts. It’s best to keep a good amount in cash reserves – that is any kind of cash investment mentioned above – at least what you’d need to six months of unemployment or disability, plus whatever you will need in the next two years. Investments for the longer term can go into riskier investments such as stocks.