Bond is like an IOU that pays interest (called a debt-related security because you are borrowing money)
Interest earned on municipal bonds is tax free at federal, state, and local level Savings Bonds are usually lower value investments ($50 to $10,000) Treasury Bonds are more expensive investments and are exempt from state/local taxes ONLY U.S. gov’t bonds – when federal gov’t needs money they issue bonds (they are always safe b/c gov’t can just print more money or raise taxes if needed to pay back the loan at maturity) CONSIDERED RISK FREE BUT ALSO HAVE LOW YIELDS (low interest rates) Municipal Bonds – raise funds for public projects like building of schools, bridges, & highways Considered a little more riskier but are attractive b/c interest earned is exempt from federal income taxes & state taxes Corporate – higher risk but higher possible return on bond because of bankruptcy threat Risk of buying corporate bond varies according to financial health of the corporation
Stocks are shares of ownership, not debt security like a bond IN THIS CASE, WHEN CORP. ISSUE SHARES OF STOCKS THEY ARE NOT BORROWING MONEY, RATHER THEY ARE SELLING OWNERSHIP RIGHTS People sometimes invest in non-dividend paying stocks so they expect the price of the stock to rise as the company grows, therefore making their shares worth more over time RISKIER INVESTMENT THAN BONDS USUALLY BUT DEPENDS ON THE CORPORATIONS! Dividends are in the form of a dollar amount for each share owned (the more shares the higher the dividend)
Stock or bond (debt-related) mutual funds where there is a collection of securities chosen & managed by a group of professional fund managers Shares are bought & sold just like a stock Diversification – investing in wide variety of financial assets so as to reduce the risk of poor performance of one Each mutual fund has different goals – stock funds for growth & income from dividends & value appreciation while bond funds offer lower risks & money market funds are short term with higher interest rates than savings accounts but no FDIC insurance Compare funds to market index like S&P or Dow, if not getting same returns then may be not managed well enough
What determines a stock's price? There are many factors that play into a stock's price. Overall, though, the price is determined by investors' perceptions of what the stock is worth. Some of the biggest factors include: How big and successful the company is (especially its earnings) Recent company news The state of the U.S. and world economies Whether there is a bull or bear market World events, whether good or bad
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