For anyone new to investing, the options can be nothing short of overwhelming. Most individuals only know the
money investing basics such as stocks, bonds, and the fluctuating news coming from Wall Street. But investing can be a safe, simple way to put your money to work for you. In fact, some of the safest ways to step into the investment world are with fixed income investments.
A fixed income investment is a type of investment that keeps returning the same amount of interest every month until it reaches the end of its commitment period. Your money will return interest, and grow in value without the risk of rising and falling rates, or losing money paying high usage fees. Even if you can’t make contributions every month, you can still save—and save effectively—for short or long-term financial goals by using fixed income investments. In this article, we’ll outline five basic types of investments that are commonly available through your employer, local broker or bank, to help you take the leap into the investment world safely.
Bonds
Stocks and bonds are usually referenced side-by-side, and can have negative connotations for the first time investor. But a bond is, at its heart, just a reverse loan. With a bond, the investor plays the role of lender. When the bond is purchased, the investment acts as a loan to a business or to the government, with a fixed interest rate payable back to the investor when the bond reaches the end of its commitment period, called maturing. Bond traders or brokers arrange bonds.
Certificates of Deposit (CD)
Certificates of Deposit combine the security of fixed interest with the restriction of early withdrawal penalty fees. They are perfect options for the beginning investor that may have difficulty with dipping into his or her savings for the occasional splurge. CDs are purchased through banks, credit unions and other financial institutions, and are insured by the
Federal Deposit Insurance Corporation (FDIC). Once purchased, the investment is put away with a fixed interest rate for a specific period of time, which can be anywhere from six months to several years. Some CDs allow for the investor to add more funds, but taking any out before the maturity date is always frowned upon.
U.S. Treasury Notes
The
U.S. Treasury offers notes, bills and bonds to interested investors. Treasury notes are, like bonds, reverse loans, called debt securities. They come with a fixed interest rate that is determined by bid. If the investor chooses a competitive bid, he or she chooses a semi-annual yield that may or may not be approved. A noncompetitive bid assumes the investor accepts the yield that is chosen by the treasury. Notes have a maturity period of between one and 10 years.
Money Market Accounts (MMA)
MMAs, also called money market deposit accounts, are more closely related to a savings account than a bond. They are offered by most banks and are insured by the FDIC. MMAs are liquid—meaning the investor can withdrawal funds—and offers high interest rates. In return, however, the numbers of transfers or withdrawals are restricted, and the investor must maintain a minimum balance in order to avoid fees.
Money Market Funds
A money market fund is a collection of investments in short-term, secure investments of many different varieties. Those who issue money market funds try hard to keep the price per investment in the fund at $1, so while the interest rate is not guaranteed the investments are safe from major fluctuations. Money market funds are a type of mutual fund, and need to be set up by a broker. The FDIC does not insure money market funds.
There are many more varieties of safe beginner’s investments available for those interested enough to look. Your local bank, brokerage, credit union or financial service provider should be able to advise you on what is best for you, or, there are many nationally recognized sources of financial education available online. Check ‘n Go, a
payday loanprovider, offers many different types of short and long-term investment advice in their planning section.
