Products: Basics of Investing
Investment products are available today to meet the risk tolerance, investment horizon, and financial situation of just about anyone. Cash investments, Stocks, Bonds, Fixed Annuities, Variable Annuities, Mutual Funds, and Certificates of Deposit are some of the investment options available. Real Estate Investment Trusts and Certificates of Deposit are some of the investment options available. At First Minnetonka Investment Center (FMIC), we listen to you and ask questions to understand your needs and risk tolerance. With this information we establish investment goals and a financial plan to achieve them.
Cash investments offer a very important and necessary element of any prudent investment strategy: liquidity. You may take money out of cash accounts when you need it, without substantial penalties or interest forfeitures. However, unlike cash in your pocket, while you’re not spending the money it earns some interest. Money market accounts and savings accounts are examples of cash accounts. Contact us for help in establishing one today!
Equities represent ownership in a business with the potential to go up or down in value. Examples of equity investments include individual stocks and mutual funds. Patience is required when investing in equities. Success with equities requires patience for a pay-off. Short-term trading (also called day trading) is not investing—it’s more like gambling with all the inherent risks. Choosing individual stocks is generally more risky than investing in a mutual fund which spreads your investment risk across a portfolio of stocks.
Bonds are a form of investing that can generate earnings through loaning money to a company or government agency. One of the oldest ways to invest, a bond certifies that the issuer has borrowed a specific sum of money and needs to repay the principal and interest to the bondholder by a certain date.
Because most financial variables associated with bonds are known at the time they are issued, many investors include bonds in their portfolios to provide diversification and balance. Bonds tend to be more predictable than other types of investments because many of the financial variables associated with them are known at the time they are issued. Bonds are attractive because they provide a source of fixed income for a defined period of time (assuming a bond is not "called," or paid off by the issuer). Bonds, however, are not a guarantee for making money. Bonds are subject to interest rate risk where the value will drop with a rise in interest rates.
Certain types of bonds may offer less risk than many stocks. Of course, that generally means they offer lower rates of return. Then again, there are also types of bonds—junk bonds for example—that are more risky than many stocks. If you want to add balance to a portfolio full of stocks, diversify your investments, or you like the idea of being a moneylender, you may want to consider what bonds can do for you.
You may purchase individual bonds or bonds invested in a mutual fund. Contact us, for more information.
A fixed annuity is an investment offered by an insurance company, and it generally offers a fixed rate of return for a specified period of time. It is guaranteed though, only to the extent of the assets of the issuing company. It is important to check the ratings of the insurance company for the annuity you may want to purchase. We offer several different types of fixed annuities, as well as immediate annuities. Contact us for specific information and current rates.
Fixed annuities have become quite popular with investors during the stock market's tumble over the past few years. With a fixed annuity, the rate of return is guaranteed by the insurance company but not by the government, as annuities are not FDIC-insured. The rate is usually a single digit, but the guarantee can be reassuring if you don't like retirement vehicles that go up and down in value.
In contrast to fixed annuities, variable annuities usually offer the potential for a greater return, but come with significant risk. With a variable annuity, you'll choose among professionally managed variable investment options that are suited to your goals, objectives, risk tolerance and timeframe. You can decide how much to put in each and exchange funds between the investment options as you see fit. Your returns will fluctuate with the performance of those variable investment options. In other words, your annuity may lose value and you could end up with less money than you started with.
Many variable annuities have a fixed account option, which allows you to allocate some of your premium payments more conservatively. Plus with variable annuities, you can usually add death benefit protection for your beneficiaries at an additional cost. All of this is explained more thoroughly in the prospectus which is required reading before you purchase a variable annuity. Our investment professionals can help you determine if this may be right for you.
A mutual fund allows investors, large and small, to put their money together into a large pool, which is managed by an investment company. The mutual fund company then invests in a portfolio or "large bunch" of stocks, bonds or other assets more efficiently and cost effectively. Generally, the larger the fund, the greater its cost advantage in making purchases and sales for the mutual fund. The portfolio is professionally managed by people who have the expertise to invest in the types of companies the mutual fund invests in.
Regardless of the amount of money you have to invest, you have the potential to benefit from investing in mutual funds. The four primary reasons why you may want to consider a mutual fund:
- Diversification has potential to reduce risk
- Professional money managers handle day-to-day decisions
- Convenience of not having to research securities or place trades yourself
- You can start investing with as little as $50
There are over 15,000 mutual funds from which to choose. You may select from stock mutual funds, bond mutual funds, real estate mutual funds, or balanced mutual funds, which generally includes a mix of stocks and bonds. Our investment professionals can help you determine if mutual funds are an appropriate investment vehicle for you.
Investing involves risks, including the potential for principal loss. Diversification and asset allocation do not assure a profit or guarantee against loss. Bonds are subject to risks including, but not limited to interest rate risk, market risk and default risk. Please carefully consider the investment objectives, risks, charges and expenses prior to investing in mutual funds or variable annuities. The prospectus, which contains this and other information, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest. Variable annuities are long-term investments that carry surrender charges for withdrawals during the early years of a contract. Withdrawals of earnings are subject to taxation and withdrawals prior to age 59 1/2 may be subject to a 10% tax penalty.