Investment Choices

OK, I have decided to invest. The mortgage will be paid off as per the amortization. As I get closer to the end of this mortgage, I plan to have an investment build up with:
1. My contributions
2. Tax refunds and
3. The growth of above funds.
Let us talk about the 3rd issue here assuming first two are clear.

The money invested is expected to grow to meet our objective at acceptable volatility or risk.
Risk is defined as standard deviation of returns a particular investment. In other words how much would my returns fluctuate.

To understand this we need to disintegrate our options as following:
a. Debt
b. Equity
There above two options, in varying combination, derivation and allocation give rise to our investment options.

Debt:
This is money invested as loan to an institution. It can range from GIC (CDs in the US) to bonds and debentures. You loan your principle with a defined interest rate paid on regular intervals over a period. At the end of this period, the principal is due. The value of this investment is determined by the changing interest rates vis-a-vis the loan/bond in question. No matter what the changes are, if held till maturity, investor can expect the promised rate paid annually or semi-annually and principal at the end of the contract. This results in relatively a predictable return and stable investment.

Equity:
This category is formed by investments in to the ownership of a company in pursuit of business opportunities. This ownership is in form of shares and are traded on a stock exchange. The value of this investment is less predictable and returns can fluctuate widely depending upon the specific investment. The expected returns is usually higher than fixed income/bond investments to offset the uncertainty and volatility.

A diversified portfolio of above investments holding over 50-100 such individual investments are offered by the financial institutions as bond or equity funds.
A combination of these can be tailored to match individual financial plans and investment/asset allocation strategy.