To learn how you can invest to reach your retirement savings goals, it's important to understand some basic investment information.

There are three commonly identified asset classes utilized in mutual fund investing: stocks, bonds, and short-term investments. Each of the investment choices offered through the AHRP are made up of one or more of these asset classes.

When you buy stock, you're really buying part ownership in a company. Stocks have a higher level of short-term risk than bonds or short-term investments, but over the long run, they have provided better returns (earnings). Of course, past performance is no guarantee of future results.

When you buy bonds, you're actually loaning money to companies or governments, who then promise to repay the loan and provide a certain interest rate. Bonds generally have more risk than short-term investments, but less than stocks.

These can include certificates of deposit (CDs), Treasury bills and money market instruments.* Short-term investments generally offer a relatively low level of risk, but over the long term, they generally provide lower long-term returns than stocks or bonds.

*Unlike mutual funds, most CDs and U.S. Treasuries offer a fixed rate of return and guarantee payment of principal if held to maturity. Unlike most bank products such as CDs, money market funds are not insured by the FDIC.

The three investment types--stocks, bonds and short-term--are used as building blocks for mutual funds. A mutual fund pools your money with that of many other people who have similar investment goals. Professional money managers use the pool of money to buy individual securities, such as stocks, bonds, and short-term investments. However, rather than owning the securities directly, you and other mutual fund investors own shares in the fund. You make money if the fund shares grow in value, or when the fund earns income through dividends or interest.

How $100 Grows Over Time

This chart shows how each asset class might have grown between 1926 and 1998 with a $100 initial investment.