Learn
the basics of investing - different types of
investments available to you.
BASIC
TYPES OF INVESTMENTS - FINANCIAL INSTRUMENTS YOU
SHOULD KNOW
Are you new to investing? Then
it is important that you know and
understand the basic types of
investments that are available to
you.
The
following financial instruments are the
investment options generally available to you in
the investments marketplace.
BASIC
TYPES OF FINANCIAL INSTRUMENTS
Savings Accounts
Savings accounts are a safe haven to
store your emergency funds. They provide easy access to your money and are
generally insured. If you or your family’s deposit accounts at one
FDIC-insured bank or savings association total $100,000 or less, your funds
are fully insured. The chief drawback of such accounts is that interest
rates tend to be low since they offer a very high degree of safety.
CDs (Certificates of Deposit)
A
CD is a special type of deposit account that typically offers a higher rate of
interest than a regular savings account. Just like savings accounts, CDs are
also insured up to $100,000. When you purchase a CD, you invest a fixed sum of
money for fixed period of time. Usually, the longer the period, higher is the
interest rate. There are penalties for early withdrawal.
Money Market Deposit Accounts
These accounts generally earn higher interest than savings accounts. They are
very safe and provide easy access to your money. They are also insured by the
FDIC. They offer many of the services that checking accounts offer, however, a
limit is normally placed on the number of withdrawals or transfers you can make
during a given period of time.
Stocks
When you buy stocks, you own a part of the company’s assets. If the company does
well, you may receive periodic dividends and/or be able to sell your stock at a
profit. If the company does poorly, the stock price may fall and you could lose
some or all of the money you invested.
Bonds
A
bond is a certificate of debt issued by the government or a company with a
promise to pay a specified sum of money at a future date and carries interest at
a fixed rate. Bond terms can range from a few months to 30 years. Bonds are
tradable instruments and are generally considered a safer than stocks because
bondholders are paid before stockholders if a company becomes bankrupt.
Independent bond-rating agencies rate the likelihood that any given bond will
default.
Mutual Funds
A
mutual fund is generally a professionally managed pool of money from a group of
investors. A mutual fund manager invests your funds in securities, including
stocks and bonds, money market instruments or some combination of these, based
upon the fund’s investment objectives. By investing in a mutual fund you can
diversify, thereby, sharply reducing your risk. Most mutual funds charge fees.
You often pay income tax on your profits.
Annuities
Annuities are contracts sold by an insurance company designed to provide
payments to the holder at specified intervals, usually after retirement.
Earnings cannot be withdrawn without penalty until a specified age and are taxed
only at the time of withdrawal. Annuities are relatively safe, low-yielding
investments. An annuity has a death benefit equivalent to the higher of the
current value of the annuity or the amount the buyer has paid into it.
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Learn
the basics of investing - different types of
investments available to you.
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