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Characteristics of Selected Investments
Source: Encyclopedia of Banking & Finance (9h Edition) by Charles J Woelfel
(We recommend this as work of authority.)





Provide income for life or for a determinable number of years.  Available at life insurance companies.

Annuities are relatively safe investments and usually have a guaranteed rate of return.  Variable annuities often provide a higher rate of return than do regular annuities.  Many annuities carry a lower rate of interest than do other available investment opportunities with similar risks.


Provide a financial service that accumu-lates into a single account a variety of investment and transaction services, e.g., brokerage services, a money-market fund, and a credit card.  Available at commercial banks, brokerage houses, insurance companies, and mutual funds. Coordinates investment and banking activities, simplifies recordkeeping, provides market rates of return on cash balances, makes available margin loans at competitive rates, etc.  Many asset management accounts require a relatively large initial investment.  The account may not be federally insured.  Annual fees can be substantial.


Negotiable time drafts drawn typically to finance the import, export, transport, or storage of products.  Available from banks and brokerage firms. Relatively safe, short-term investments backed by the credit of the borrowing company.  Penalties often imposed for early demand for funds.

of Deposit

Instrument represents a sum of money left at a bank for a period of time; at the end of the period, the bank pays the deposit plus interest.  Available at banks, brokerage firms, savings and loan associations, and credit unions. Depositor can "lock-in" yield for a specified time.  Higher rate of return than on a savings account.  Little risk to principal.  Penalty often imposed for early withdrawal.


An ownership interest in a corporation.  Available at brokerage firms, some banks and savings and loan associations, and financial-services companies. Equity investments with potential for relatively high returns and capital appreciation.  Some participation in management through right to vote for board of directors.  Exposure to market risk.  Broker's commissions when buying and selling.


Debt typically issued by large corporations.  Available at brokerage firms, investment bankers, and corporations. Pays a fixed investment return over a relatively high returns and capital appreciation.  Some participation in management through right to vote for board of directors.  Exposure to market risk.  Broker's commissions when buying and selling.
Futures Goods, articles, rights, services, and interests in which contracts for future delivery may be traded.  Available on a registered exchange. Potential to accumulate many contracts on a relatively small investment.  Very speculative.


Long-term, tax deferred account enables a person to accumulate retirement funds.  Available at mutual-fund companies, banks, brokerage firms and insurance companies. No taxes paid until withdrawals, typically after retirement when investor is in a lower tax bracket.  Withdrawals made prematurely can be penalized.
Keogh Plan A retirement plan for self-employed persons and their employees.  Earnings of plan and new funds deposited are exempt from income taxes until withdrawn, subject to certain specified limits.  Available at mutual funds, banks, brokerage firms, credit unions, and insurance companies. Plan deposits and earnings are available for growth; untaxed until withdrawal.  Restrictions are present; withdrawals made prematurely can be penalized.

Mutual Fund

Pooled money of many investors in a variety of short-term money market securities issued by the federal government, "blue-chip", corporations, and banks.  Available at mutual-fund companies, brokerage firms, and financial service companies. High, short-term interest rates available.  Professional management.  Diversifica-tion of investment.  Initial minimum investments may be required.  Usually not insured.


A contractual obligation between an authorized political subdivision (e.g., state, country, city, school district) and an investor.  Available at banks and brokerage firms. Interests exempt from federal taxation; frequently exempt from state and local taxes in the state of origin.  Good safety record.  Many issues available.  Subject to interest-rate risks, e.g., as rates change so does the principal value of outstanding bond.  Market risks related to changes in credit rating exist.  Prices respond negatively to inflation.


Bonds of political subdivisions that are to be repaired from taxes on property in the particular subdivision.  Available at banks and brokerage firms. Backed by taxing power of the political subdivision.  Yields are relatively lower than yields on revenue bonds of similar rating and maturity.

GNMA- Mortgage
(Ginnie Maes)

A GNMA investment is made up of a pool of FHA and VA residential mortgages.  After the Government National Mortgage Association gives its approval to the mortgages, a GNMA mortgage-backed certificate is issued.  GNMA securities are available through brokerage firms, commercial banks and unit investment trusts. GNMA securities provide monthly principal and interest payments, guaranteed by the U.S. government.  Yields are competitive with government and federal agency securities and high grade corporate bonds.  The value of the security can fluctuate with changes in interest rates.  The securities are very liquid.


Bonds the interest and principal of which is to be paid from a specific source, e.g., tolls, electric or water revenues, etc.  Available at banks and brokerage firms.

Relatively high yields as compared with general obligation bonds.  Narrow revenue base can increase risks.
Mutual Funds Pooled resources of many investors; funds invest in a variety of securities, e.g., stocks, bonds, and money-market securities.  Available at mutual-fund companies, brokerage firms, financial-services companies and insurance companies. Provide for diversification of portfolio at a relatively low cost, thereby reducing risk.  Professional management.  "Switching" privilege from one type of fund to another is typically available.  Wide selection of funds.  Minimum initial investment.  Not federally insured.  Subject to market and credit risks.  Management fees and sales charges are typical.

NOW Accounts

A savings account that allows checking activity.  Available at banks and savings and loan associations. Deposits earn interest and can be withdrawn readily.  Recordkeeping reduced for investor.  Interest is earned on funds in the account, assuming a minimum balance is maintained.

straddles, etc.)

The right to buy (call) or sell (put) a fixed amount of a given stock at a specified price within a limited period of time.  Available at brokerage firms. Provide leverage for investment.  Risk limited to amount invested in the option.  Speculative.  Entire investment can be lost.

Preferred Stock

Corporate stock with a fixed dividend and a priority claim over common stock if the company is liquidated.  Available at brokerage firms, banks, savings and loan associations, and financial-service companies. Preference over common stock in distribution of dividends and assets, if the corporation is liquidated.  Usually lower return than for common stock of the same company.  Risk/yield usually not as attractive as bonds.

Real Estate
Trusts (REITS)

A business trust or corporation that operates by acquiring or financing real estate projects.  Available at brokers, banks and financial planners. Provide for capital appreciation and liquidity.  Centralized management.  Limited liability.  typical risks associated with investment in real estates.

Repurchase Agreement

An interest in a security at a specified price with the agreement that the seller will repurchase the interest in the security at a specified time and price plus interest.  Available at banks and brokerage firms. Provide short-term investment opportunities with "locked-in", relatively high interest return.  Agreements often provide that investment will be replaced in a day or two at a predetermined rate.  typically requires an established relationship with a bank or dealer.  Relatively complex.  Large dollar amounts.

Treasury Bills, treasury bonds and treasury notes

Bills have maturities of 13,26 and 52 weeks.  Sold in a minimum amounts of $10,000 and in multiples of $5,000 above the minimum.  Treasury bills have maturities of more than 10 years; $1,000 minimum.  Notes are medium term securities; minimum usually $5,000.  Available at Federal Reserve Banks and branches, Bureau of Public Debt, U.S. Treasury Department, banks and brokerage firms. U.S. Treasury securities are backed by the full faith and credit of the U.S. government.  Very liquid.  Exempt from state and local taxes.  Risks associated with interest-rate fluctuations exist.

Unit Investment Trust

Fixed portfolio of securities accumulated by a sponsor and offered in units to the investor.  Available through the sponsor, brokerage firms and banks. Provide for diversification and professional selection.  Sponsor typically quotes bid prices on a daily basis.

Unit Investment Trusts

A unit investment trust is a fixed portfolio of securities designed to attain specific investment goals, principally monthly income and preservation of capital through diversification.  Unit investments trusts are assembled and administered by professionals.  The portfolio is held in trust on behalf of the investors by a bank trustee.  Ownership interests in the trust can be purchased through brokerage firms and commercial banks. These securities offer diversification, monthly income, high current returns, professional selection, reinvestment options and liquidity.

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