High risk investment options

High risk investment options
Describe several high risk investment options
compare commons stock with preferred stock

stocks
common stocks - Have a vote
preferred stocks - Paid dividends before common stock holders
direct investing - Placing investments directly from the companies and holding them individually.

Blue chip stocks - Well established companies with known success
Speculative stocks - Young companies with no known track record
Par value - The dollar amount assigned to the face of the stock or bond
Market Value-What the market is willing to pay for a stock or bond

Business ventures

Start a small business
Invest in a small business
Business ventures are high risk
Returns can be high if the business is a success
A business plan outlines how a business plans to succeed

Collectibles are items bought for their investment value

Rental property
Returns come in the form of rent and increased property value

Futures contracts and commodities
Futures contract
 -An agreement to buy or sell a specific commodity or currency
 -A price is set
 -A date in the future is set for buying or selling
Investing in futures contracts and commodities is very risky

Real estate investment trusts
 -A real estate investment trust REIT is a corporation
 -A REIT owns or operates income producing property
 -Investors can buy shares in a REIT

Investment clubs
 -Groups of people who pool their money and buy and sell investments
 -Direct investing
  -Individual stocks
  -Real estates
 -Indirect investing
  -Mutual funds
  -REIT shares


MEDIUM RISK INVESTMENTS

Some savings and investment are held in retirement accounts that are not taxed until the money is withdrawn
These are tax shelters

Individual plans
 -IRA accounts: Taxes paid when money is withdrawn
  -Money must be taken at the age of 70
 -Roth IRA-No pretax contributions
  -When you withdraw money it is not taxable
  -Don't have to take out at 70
  -Can contribute 6000 a year.

Retirement Accounts
 -SEP accounts: Simplified employer plan.
  -Similar to IRA but for self employed small business owners
  -Money taxed when withdrawn
  -Amount put back per year is limited
 -Keogh accounts; Similar to SEP
  -Available to self employed and their employees
  -Higher limits
  -Taxed when withdrawn

Employer sponsored plans
 -401K accounts; tax deferred plan for employees
  -403B accounts for employees of nonprofit organizations or educational institutions not matched by employer

Pension plans; retirement accounts that are paid for entirely by the employer
Also called defined benefits plans on pension plans
Must work for a certain number of years to qualify
Fewer of these now
Must pay tax on the money when received.

Portability
 A portable account can be taken with you when you leave a job
 You must be vested to move the account
 Vested means the employee meets certain requirements
 Rollover is the process of moving and investing balance to another qualified account

Investments with medium risk
 Family home
  -Long term investment
  -Not liquid
  -Fairly safe investment
  -Typically grows in value faster than inflation

Mutual funds
 -Operated by professional investment firms
 -A form of indirect investing
 -Focused on a chosen investment strategy
 -Investors can select the asset allocation

Mutual funds
 Mutual fund companies sell shares to many investors
 Pooling your money with money from other investors to reduce risk
 Paying for the firms expertise.
 Investment is diversified
 Form of indirect investing-invest in company; select type of fund company selects the combination of investments

With mutual funds the investor can also choose a combination of funds this is called asset allocation
The investor could pick investments that have a variety of risks

Savings
 Certificates of deposit
  -The money is set aside for a set time
  -The money earns a set interest rate
  -A CD is low risk
  -A CD is not a liquid investment

Investments vary in term, risk and return rates
 Low risk options typically pay lower rates than those with higher risk
  -Savings bonds issued at discount redeemed for face value when it matures

Bonds:
 -Sold at face value, at a discount less than fave value at a premium, more than a face value
 -Receive regular interest payments from a bond. Interest paid twice a year
 -Interest amount set at the time the bond is issued
 -Callable bond Repay bond before maturity date

Corporate Bonds
 Issued by corporations to raise money.
 Form of borrowing by a company
 Fixed coupon interest rate
 Interest is subject to income tax.
 Multiples of 100 or 5000
 Short term 2 to 3 years medium term 3 to 10 years long term more than 10 years

Types of corporate bonds
 Risk ratings are assigned to bonds
 Investment grade bonds: high rating low risk
 Speculative grade bonds lower ratings junk or high yield bonds

Government bonds
 Issued by the US treasury or agencies
 Low risk when held to maturity
 No state and local taxes on the income
 Bonds make a good tax shelter an investment that allows you to legally avoid or reduce income taxes.

Other government bonds
 municipal bonds issued by states counties, cities, and towns.
 Used to pay for projects such as roads
 No federal state or local taxes on the income
 low risk bonds

Other investments
 Life insurance gains cash value not term life insurance though
 Low rate of return
 Provides Death Benefits
 Can borrow against the life insurance policy
 Plans are not insured

 Brokerage account at an investment company
  -Clearing account, is an account used to buy and sell investments
  -Not insured low risk, works like a checking account
  -Account is liquid
  -Earns higher interest than checking or savings accounts but riskier

Annuities continued
 At maturity you get monthly payments from the annuity
 Used as a source of retirement income.
 Fairly safe if the company you invest in is safe.
 Not insured
 Interest will be taxed when you receive the monthly payments

 Annuities are a contract purchased from an insurance company
 Guarantees a series of regular payments for a set time
 To buy an annuity, you pay a monthly payment into the account for a set number of years or put in a lump sum.