Equities
Stocks: Equity investments give you an ownership interest in the corporation issuing the stock. When you buy shares, you are buying a piece of the company and become an investor in that company. If the company does well, your stock increases or appreciates in value and if the company makes a profit, you may receive a portion of that profit in the form of a dividend. If not, you could lose some (or all) of your money. Stocks offer long-term growth potential and typically can be bought and sold quickly and easily. Although more risk is involved in equity investments, historically, over time returns outpaced inflation and any other investments.
Fixed Income Investments
Bonds: As a bondholder, you have become a lender to a corporation or municipality. Bonds generally have a fixed face value and interest will be paid to you on a regular basis – usually semiannually. At maturity, you will be paid the face value of the bond, unless otherwise stated. Interest paid by the bond issuer is based on the financial health of the company or municipality.
Municipal Securities: When you purchase a municipal security, you are lending money to a municipality – a state or local government or their agencies – for a specified period of time. The issuing entity promises to pay the bondholder interest, usually semiannually, and return the principal at maturity. The key attraction of municipal bonds is that the interest they pay is generally not subject to federal income tax and in some cases is free from state and local income taxes as well (for certain investors, certain issues may be subject to the alternative minimum tax).
Short-term Investments
Certificates of Deposit (CD): When you buy a CD, you agree to keep your money on deposit for a certain amount of time, the amount of interest you earn is fixed and based on how long you agree to keep your money on deposit. Interest is usually paid monthly or semiannually, depending on the maturity of the CD. If you take your money out before the agreed-upon maturity, you will typically be charged a penalty. CDs are typically issued by banks and are usually insured by the Federal Deposit Insurance Corporation.
Money Market Deposit Account: A high-yield savings account,
FDIC insured, that allows depository financial institutions to be more competitive with money market mutual funds. The difference between the money market and the bond market is that the money market specializes in very short-term debt securities (debt that matures in less than one year). Money market investments are also called cash investments because of their short maturities.
Money market securities are essentially IOUs issued by governments, financial institutions, and large corporations. These instruments are very liquid and considered extraordinarily safe. Because they are extremely conservative, money market securities offer significantly lower return than most other securities.
Mutual Funds:
Mutual funds are one of the most popular ways to invest. When you invest in mutual fund, your money is pooled together with that of other investors. This money comprises a portfolio of securities based on the specific investment objective of the fund, as defined in the fund's prospectus. This portfolio is monitored by a portfolio manager. Mutual funds can provide you with a wide and diversified range of investment choices including stock funds, corporate bond funds, U.S. government bond funds, municipal (tax-free) bond funds, international funds, sector funds and money market funds.
