Stocks
Anytime that you invest into a particular stock, you’re becoming an owner of a corporation. Stocks are essential shares of ownership, which also might be called equity shares or equities. The kind of stock you own, the trends in the larger stock market, and the failure of a success of a company are among the many factors that decide whether or not you lose money or make it. Stocks, as well as stock mutual funds, are typically considered essential components in any properly diversified investment portfolio.
Are you a beginner? Read our post on investment basics.
Bonds
Bonds are typically loans that investors make to governments, federal agencies, corporations, and other organizations. In exchange, the investor gets interest payments over a specific span of time followed by full repayment of the bond’s principal when the maturity date happens. A number of various kinds of bonds exist including municipal bonds, agency bonds, corporate bonds, and Treasuries, just to name a few. There are also quite a few kinds of different bond mutual funds. Either bonds or bond mutual funds can be crucial components to a properly diversified investment portfolio, and investing in them does carry the risk of losing your investment money, especially if you buy a bond that you need or want to sell prior to its maturity. Also, prices for bond mutual funds vary, just like stock mutual funds do. The kind of bonds you own will determine your risk level.
Investment Funds
An investment fund is a financial vehicle that pools together the money of multiple investors that invests all of it according to one strategy. Investment funds come in a variety of kinds, and each one has its own distinct features. In general, any publicly offered fund has to be registered as an investment company; these might be mutual funds, closed-end funds, exchange-traded funds, and unit investment trusts. Private investment funds are also known as hedge funds, and they are typically exempted from having to register with the Securities and Exchange Commission; funds whose shares are not registered with the SEC aren’t subjected to the regulatory standards that mutual funds and other publicly offered funds have to align with. Funds do offer the advantages of professional management, diversification, and access to a broad spectrum of investment styles and strategies. However, a fund’s past performance isn’t always indicative of future results, and this kind of investing carries an element of risk.
Bank Products
Credit unions and banks are places you can accumulate savings in relative safety and convenience. A number of them even provide services for helping you manage all or some of your money. Deposits at such institutions are usually insured by the federal government up to limits which Congress sets. Deposit and checking or transaction accounts offer you liquidity, meaning it’s simple to access your funds for whatever reason you need, be it daily expenses, down payments, or emergencies. On top of FDIC insurance, another benefit of checking accounts is the ability to transfer money through electronic means or just a traditional check to any organization or party that you specify as a payee. Keep in mind that while many bank products, ranging from accounts to certificates of deposit, offer interest, the rates and returns are usually lower than other kinds of investments.
Options
Options are contracts that can help investors manage their risk. When they own options, they have a right, but not necessarily an obligation, to either sell or buy securities, like exchange-traded funds or stock shares, at a predetermined fixed price inside of a specified time-frame. As with other forms of investment, selling and buying options still carries risk, and losing money is possible. There are trading strategies that can be learned though, and learning the various kinds of options can pay off.
Annuities
Annuities are contracts between an investor and an insurance company. They’re arrangements where the company agrees to make periodic payments, either starting immediately, or later in the future. Annuities can be bought in either a single payment or over time with a number of payments known as premiums. Some annuity contracts are ways to save up money for retirement, whereas others can be used to turn savings into a retirement income stream. Others still actually do both. A deferred annuity is one where you use the annuity for savings and you get future payouts. An immediate annuity is one where you get payments right away as a source of income for your retirement.
The two common kinds of annuities are either fixed or variable. Variable annuities are considered to be securities. You can also find a hybrid between these two known as an indexed annuity, although it might also be called a fixed-index or equity-indexed annuity.
Annuities are usually products that investors think about when planning for retirement, so it’s useful to understand them. They also commonly get marketed as a tax-deferred savings product. Annuities carry with them various expenses and fees, including but not limited to administrative fees, surrender charges, and mortality and expense risk charges. The commissions on annuities are high, often hitting 7 percent and higher.
Retirement
Two of the most important aspects to successful personal financial management include saving up for retirement and then managing income after retirement. An IRA or 401(k) can be a smart choice when it comes to saving up in a tax-advantaged option. On top of the possible tax benefits, there is a tremendous opportunity for savings to compounds a lot over the course of time. Once you do retire, how you manage your income can prove to be the difference between a comfortable retirement or running out of money later in the future. Whether you are already retired or are just still saving up for it, there are a number of actions you can perform now in order to better manage your retirement income.
Alternative And Complex Products
If you’re looking for investment products that offer you alternatives to traditional stock and bond avenues to investment, then you’ve got plenty of options. They’re known as non-conventional investments or structured products. They can be very complicated, and that carries an increasing level of risk, over traditional paths to investments. Investors are often tempted with higher returns and special features. Complex products might use options and futures in conjunction with complicated trading strategies in order to achieve their investment objectives. A few examples of complex products are things like high-yield bonds which carry lower credit ratings but higher risk of default or notes that have principal protection. These kinds of products might have very attractive qualities to them, but you need to remember that they also have higher levels of risk than most of the other investment avenues on this list.
Commodity Futures
Commodity futures are contracts and agreements where a specific amount of a commodity is bought or sold at a predetermined price on a specific future date. Commodities include things like animal products, grains, oil, metals, currencies, and even financial instruments. With only limited exceptions, the trading of futures contracts has to happen on a commodity exchange floor. The CFTC or Commodity Futures Trading Commission is a federal government agency tasked with regulating this investment arena, and anyone trading futures or advising for the public has to be registered with the NFA, or National Futures Association. They have a tool called BASIC, or Background Affiliation Status Information Center, you can use to confirm registrations and if someone is subject to specific disciplinary actions before you invest with them.
Insurance
A broad enough financial plan is typically going to include life insurance products, and these come in different forms, like universal life, whole life, and term life policies. Some variations, like variable universal and variable life insurance policies, that are designated as securities and have to be registered with the SEC. Many insurance products are created with the intention of meeting particular objectives, like managing health care expenses in retirement. These products can be complicated, and fees abound, so do your homework.
