Investment Types

Investments are typically categorized into Cash, Stocks(Equities), Bonds. Other less liquid investments include such items as real estate, collectibles, and precious metals. These assets typically provide less diversification but can help diversfy a portfolio.

Assets are categorized to help distingwish their use and risk. Some assets serve to produce income, some to grow and others for short term needs. Each has its own unigue categoristics.

• Equities (Stock)
  When you invest in stocks, you’re buying a share of ownership in a corporation and become a shareholder. Companies sell shares of stock to raise money for start-up or growth.

There are two types of stock: common stock and preferred stock.

With common stock, shareholders have a percentage of ownership. For example, if you own one share of common stock in a company that has 100 shares, you own 1 percent of the company. Common stock shareholders also have the right to vote on issues affecting the company.

Preferred stock usually does not offer voting rights, but shareholders are generally entitled to dividends (the company’s profits distributed in cash). Preferred stockholders typically receive dividends at specified times and in predetermined amounts; common stockholders may or may not receive dividends based on company profits.

Investment returns and risks for both types of stocks vary, depending on factors such as the economy, political scene, the company's performance and other stock market factors. Typically stocks are further divided into size of the company's capitalization (Small, Mid-cap, Large), whether they are US based or international and what stage they are in (Growth, Value or a Blend)

• Bonds
  When you buy bonds, you loan money to the government or to a company. Bonds are issued for a set period of time during which interest payments are made to the bondholder. The amount of these payments depends on the interest rate established by the issuer of the bond (the government or company) when the bond is issued. This is called a coupon rate. Coupon rates can be fixed or variable. At the end of the set period of time (called the maturity date), the bond issuer is required to repay the par or face value of the bond (the original loan amount).

Bonds are considered a more stable investment compared to stocks because they usually provide a steady flow of income. But because they’re more stable, their long-term return probably will be less than that of stocks. Bonds, however, can sometimes outperform a stock’s rate of return, depending on the particular stock.

Keep in mind that bonds are subject to a number of investment risks including credit risk, repayment risk and interest rate risk.

• Cash Equivalents
  Cash equivalent investments, protect your original investment and let you have access to your money. This category generaly includes bank and savings accounts, money maket funds, CD's, treasury bills, savings bonds, fixed annuities and the cash value of life insureance .

These types of investments generally deliver a more stable rate of return. On the other hand, the rate of return (after taxes are paid) is often so low that it doesn’t keep pace with inflation. A passbook savings account, money market fund or CD may give you quick access to your cash and may provide more short-term security. However, they’re not designed for long-term investment goals like retirement.

• Other Investment Types
  Other less liquid investments such as real estate, collectibles, precious metals, etc., typically provide less diversification but can help diversfy a portfolio.

Any of these above options can be combined into a mutual fund which can be defined as a single portfolio of stocks, bonds, and/or cash managed by an investment company on behalf of many investors. More recently Electronically Traded Funds (ETF's) have been introduced which act like a fund but trade like a stock. For more information on all types of investment check out the menu bar on the top left of the screen.