|
Type
|
Purpose
|
Characteristics
|
| Annuity
|
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.
|
|
Asset
Management
Accounts
|
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. |
|
Bankers
Acceptances
|
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. |
|
Certificate
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. |
|
Common
Stock
|
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. |
|
Corporate
Bonds
|
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. |
|
Individual
Retirement
Accounts
(IRA)
|
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. |
|
Money-market
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. |
|
Municipal
Bond
|
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. |
|
General
Obligation
Bonds
|
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
backed
government
securities
(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. |
|
Revenue
Bonds
|
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. |
|
Options
(puts/call, 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
Investment
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
("repo")
|
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. |