The question there is what's your time horizon? And what's your risk tolerance? How quickly will you need access to this money? f you're saving for a few months to a year, bonds or money market are a good, relatively safe investments that pay better interest than most savings accounts. But it can take between a few horus to a few days to get your money out.
I'm not very familiar with American retirement systems, but I keep hearing that RothIRAs are your best bet. This may help:
Retirement [Fool.com: Retirement Center]
About the stock market, I seriously don't recommending getting into it unless you have a time horizon of at least 3 years. Another thing to remember is that over the long term, the volatility of stocks gets averaged out and its done pretty well over the long term (decades, for example). IMO, volatility isn't a risk if you're a long-term investor, its just a cost of doing business, so, for me, a risk is what are the odds of me losing my capital. That's capital risk, then there's gains risk. Still, about risk tolerance: If you toss and turn and can't sleep, its too risky for you. For example, I have a high risk tolerance, I'm young and my time horizon is a few decades. Stocks are my investment of choice (value investing, ftw).
For you, though, I would recommend index funds. They're basically mutual funds that just own all the stocks in the index, thus almost directly matching the returns of a market (less transaction costs and management fees, etc). In the long term, the S&P has done between 9-11% (depending on how you calculate it), and seeing as how most professional mutual fund owners don't even match that, its an excellent investment. Again, it can be volatile, but over the long term, it averages out.
I also wrote this post a while ago:
$13,000: What Do I Do With It?
This might be interesting, too:
"Ordinary People, Extrordinary Wealth"
And this:
1st Steps to Better Finances?
You've made a great decision to educate yourself about finances. Good luck! And don't get scared away by the reading, its really not that much. Feel free to ask me any questions (here or via PM).
