Types of Investments
Bonds
Bonds are known in the investment world as “debt instruments”. This means that they are issued to the investor in exchange for money that the investor loaned the issuing company, entity, government or municipality. The issuing party owes the investor for the loan he gave them.
The most common bonds in the United States are government bonds. These can be common savings bonds, Treasury bonds, or municipality bonds. While EE savings bonds can be purchased at your local bank for as little as $25 on a $50 bond, other bonds require more investment and effort. For example, Treasury bonds can be purchased for as little as $100, but they are issued for a 30 year period and they pay a fixed rate of interest every 6 months.
The long-term on most bonds is what makes bonds one of the “building blocks” or foundational investments in any investor’s portfolio. When you put your money in bonds, you are committing to a long-term return on your investment; you are agreeing that you will not need the money for many, many years. If you break the agreement, then you lose the most because the value of the investment is in having it over a period of many years.
CDs –Certificates of Deposit
CDs, or Certificates of Deposit, are issued by banks and investment institutions for monies deposited for an extended period of time, and they are generally FDIC insured with a low return rate. You can purchase them via your local bank or through various online sources. To shop for the best and compare rates offered by banks and others, go to http://www.bankrate.com/cd.aspx.
In the building of your financial portfolio, CDs are often the second or third tier of foundation building behind a basic savings account and a collection of bonds. The savings and bonds should together total a minimum of six months of your family’s financial needs, and the CDs should be the beginning of a financial surplus in reserve and available for emergencies. Remember, reserves should be difficult but not impossible to access. These are financial principles that make your family financially secure.
