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You’re ready to start investing, but what investment choices will meet your goals? Stocks, bonds, mutual funds, and cash investments have different advantages and risks. In order to make this decision, you need to understand the difference between them. When you open an investment account, you’ll typically be asked a series of questions, which will help determine the best investment choices for you. That’s why it’s important to understand the basics.
Stock is essentially a percentage of ownership in a company that is publicly held. You’re buying in on the future earnings of the company. When the company performs well, your stock may increase in value. When the company performs poorly, your stock might decrease in value.
Stocks work well for long-term growth. While they hold more risk, they historically have a higher return. However, not all stocks are created equal. You’ll need to investigate what stocks fit your needs. Consider working with a Financial Advisor when choosing or do your own research.
Options1 require you to purchase and sell shares of an underlying security for a pre-determined price during a specific period of time. Because you’ll need to complete an Option Agreement and Approval form to begin trading, you might want to consider working with a Financial Advisor.
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A mutual fund is a professionally managed investment vehicle. The capital a fund raises is used to purchase stocks, bonds, or securities, dependent upon the objective of the fund. Mutual funds offer the ability to diversify, as they hold a large numbers of securities.
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A bond is a debt instrument, or simply a loan from the investor to the issuer. In return for the loan, the investor may be paid interest on a periodic basis and at maturity the full principal is returned. Bonds have a stated maturity date and a fixed coupon or interest payment. This is why bonds are called fixed income investments. The price of a bond will fluctuate with changes in the interest rate environment. Bond prices move inversely to interest rates; as interest rates rise, bond prices fall and as interest rates fall, bond prices rise. There are many types of fixed income investments and each has unique characteristics depending on the issuer. These characteristics include credit quality of the issuer, coupon payments, final maturity dates, and tax implications.
An annuity is a contract, issued by an insurance company, which allows you to accumulate money on a tax-deferred basis for long-term goals such as retirement. When you are ready to receive income from your annuity, you can withdraw funds as needed,2 or set up a regular payment schedule guaranteed2 by the issuer, which would last over a given time period. The issuing company may impose surrender charges that generally decline over a specified number of years on withdrawals. Withdrawals from annuities are subject to ordinary income tax and a possible 10% tax penalty if made before 59½.
Annuities are among the most popular retirement investments. Despite their popularity, many people still don’t know much about them. The following will help explain the different types of annuities. You can contact your Financial Advisor to see if annuities fit into your overall portfolio.
Consider working with a Financial Advisor when selecting and setting up annuities for your long-term goals. We can help you assess your portfolio and retirement needs to keep your money growing.
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