Before you can build a successful investment portfolio, you must understand the difference between financial assets (or investment assets) and investment vehicles. Financial assets are specific classes of securities in which you may invest, including stocks, bonds, mutual funds, real estate, money-market mutual funds, CDs, and so on. As you will learn in later lessons, these financial assets are grouped into asset classes and are associated with different levels of risk.

Investment vehicles are special types of investment accounts that provide a tax-advantaged framework that allows you to invest in various financial assets. Tax advantages include the deferral of current taxes (i.e., traditional IRA or 401(k)) or the elimination of future taxes on earnings (i.e., Roth or Education IRA). These accounts are useful because they provide specific tax advantages that are not available when financial assets are purchased individually.

Table 1 Select Investment Vehicles for 2007

Understanding the priority of money can help you identify the tax benefits and other benefits that different investment vehicles offer. Understanding these priorities can help you to determine which investment vehicles will help you achieve your financial goals the quickest. The priority of money is divided into three sections: free money; tax-advantaged money; and tax-efficient, wise investments. Understanding the priority of money can help you determine which investment vehicles you should use first in working toward your financial goals.