Investment Options

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Once you’ve accumulated some savings, consider investments that may help your money grow over the long term. Look for investments that will earn enough to outpace the cost of living (i.e., inflation). For example, if an investment earns 4 percent interest and the rate of inflation is also 4 percent, your savings will not increase in value. Don’t forget, though, that investments with higher returns also carry greater risk.

Stocks
When you buy stocks—also called equities—you become part owner of a company. That is, you own a "share" of a company’s assets. If the company does well, you may receive dividends (i.e., a small portion of a company’s earnings usually paid at regular intervals) and/or be able to sell your stock at a profit. If the company does poorly, though, the stock price may fall and you could lose some or all of the money you invested. Stocks in general are higher risk than savings vehicles or bonds.

Bonds
When you purchase a bond, you are essentially loaning money to a corporation, the U.S. government, or a local government for a certain period of time—anywhere from a few months to 30 years. The issuing entity pays you a periodic rate of interest over the life of the bond, in addition to repaying the initial bond amount at the end of the term. Overall, bonds are considered a safer investment than stocks, because bondholders are paid before stockholders if a company becomes insolvent (i.e., unable to pay all of its debts). Independent agencies such as Standard & Poor’s and Moody’s rate bonds in the marketplace according to default risk. Examine the ratings of bonds before you buy.

It’s important to understand the relationship between interest rates and bonds. When interest rates go up, there is a risk that the market value of bonds will go down. If the market value of a bond you own goes down, and you want to sell before the bond’s maturity date, you may receive less than you originally paid for the bond and/or less than the maturity value of the bond. The interest rate of bonds, however, remains fixed. For example, if you try to resell a bond when interest rates in general are higher than the bond’s interest rate, your bond will not be attractive to buyers, and its market value will drop. Conversely, if your bond pays a higher interest rate than the bonds that are currently being sold, your bonds will be desirable to buyers and the price may go up. Types of bonds include:

U. S. Savings Bonds, Treasury Bills (or T-Bills) are sold by the federal government and are principal protected and not subject to interest rate risk.

Municipal bonds (often called munis), sold by states, cities, and other local governments, are generally exempt from federal taxes (i.e., you will pay no federal tax on the interest). Depending on the issuer, muni bonds may be exempt from state and local taxes as well.

Insured bonds generally pay lower interest rates, because a third party guarantees payment of interest and principal. Insured bonds have less risk of default.

Corporate bonds issued by companies, which may include the following types:

* Zero coupon bonds, similar to savings bonds, are bonds that do not pay interest during the life of the bond. You buy zero coupon bonds at a deep discount from their face value. Face value is the amount the bond will be worth when it “matures” or comes due. At maturity, you receive one lump sum equal to the initial investment plus interest that has accrued over the life of the bond.
* Convertible bonds, which can be converted into stock.
* High-yield bonds, commonly referred to as junk bonds, are issued by corporations or governments with low ratings. They have a higher risk of default.

Mutual Funds
A mutual fund is a pool of money, supplied by investors like you, that is invested in various securities such as stocks, bonds, money market instruments, or a combination of these investments. Every share of the mutual fund represents a proportion of ownership of the fund’s total assets (e.g., investments) as well as a proportion of the income those holdings generate. The share value of a mutual fund will go up and down as market conditions change, and investors may make or lose money.

Mutual funds are not FDIC-insured, even when they are sold through a bank. Typically, mutual funds have a professional manager or team of managers making day-to-day and minute-by-minute buy and sell decisions

By investing in mutual funds, you can diversify your investments and balance risk— but there are literally thousands of mutual funds and their relative risk varies widely. Note that mutual fund companies are required by law to provide you with a prospectus before you invest. A prospectus is a legal document providing detailed information about the mutual fund’s investment strategy, fee structure, and operations. Read it carefully before investing.

Mutual funds are sold by prospectus, which is available from your registered representative. Carefully consider investment objectives, risks, charges, and expenses before investing. For this and other information about any mutual fund investment, please obtain a prospectus and read it carefully before you invest. Investment return and principal value will fluctuate with changes in market conditions such that shares may be worth more or less than original cost when redeemed. Diversification cannot eliminate the risk of investment losses. Please note that mutual fund prospectuses or the contracts for various insurance products (such as those discussed in this material) may not be available in a language other than English. Please be sure that you understand any product before you purchase it.