Securities & Bonds
Investing in Securities & Bonds:
An Overview of What's Out There
US Government Backed Securities
Considered low risk and "safe" to invest in because the US Government guarantees the interest and principle to be paid. Two options to buy: new, directly from the government or existing issues on the secondary market from other investors. All are state & local tax free but NOT Federally tax free.
The four most common types are: Treasury Bills, Treasury Notes,
Treasury Bonds & T.I.P.S.
MBS are a type of asset-backed security that is secured by a single or collection of mortgages.
High paying bond with a lower credit rating. Issuers of high-yield debt tend to be start-up companies or capital-intensive firms.
Long term investment sold in 30 year maturities. Pays interest
Ideal for short term investment, issued in 1, 3, 6, & 12 month maturities.
Do not pay interest.
Intermediate debt obligations, issued with maturities between 2, 3, 5, 7, and 10 years. Pays interest to holder semi-annually. Investors might pay face value or under/over that face value when purchasing. At maturity face value is paid to the investor.
Investment Grade Bonds
T.I.P.S. stands for Treasury Inflation Protection Securities. These are issued in 5, 10, & 30 year maturities. Could be ideal for investors looking for protection from inflation. Principle increases with inflation and decreases with deflation. Inflation adjustments are based on the Consumer Price Index (CPI).
Relatively low risk of default.
Bonds are rated:
AAA or AA = high credit quality
A or BBB = medium credit quality
BB, B, or CCC = low credit quality
Of Note: Government bonds or Treasuries
are not subject to credit quality ratings.
Issued in a domestic market by a foreign entity in that domestic market's currency as a means of raising capital. Bonds such as these "Matilda Bonds," and "Samurai Bonds," are common
Interest-paying debt securities that state & municipal governments issue to finance operating expenditures. Investment earnings of most are generally excluded from gross income for federal tax purposes.