Financial fundamentals: Understanding personal investing terms
Monday, 25 November 2019
While some people might find the idea of personal investing intimidating, actively working to grow your assets can go a long way toward helping you achieve your financial goals.
And once you become familiar with your options, you'll realize there are ways you can invest your money without too much risk.
Education is key to helping you understand your options and which one(s) — are right for you. Here are some basic terms to help you get started.
Equity-linked CDs are FDIC insured but how much you earn depends on the performance of a specific stock or security index. This gives you a chance to earn more than a regular CD but still have FDIC insurance. Like regular CDs, you invest your money for a set period of time and will pay a penalty if you take it out before the time period is up.
Fixed Income Securities
With fixed income securities, you are loaning money to the government or a large corporation for a set period of time. During that time, you'll receive fixed interest payments, and you'll get the full amount of your investment back when the time period is up. Treasury bonds, corporate bonds, Certificates of Deposit (CDs) and preferred stocks are examples of fixed income securities.
When you invest in a fixed annuity, you make a one-time, lump-sum investment and earn a guaranteed fixed rate of return for as long as you own the annuity, which is subject to the ability of the issuer to pay. Depending on the credit of the insurer, fixed annuities are considered relatively safe investments as there's little chance you'll lose your original investment. Many people use fixed annuities to provide steady income through retirement.
With variable annuities, you choose the investments (with fixed annuities you do not), and how much you earn is based on how the investments perform. Earnings are not guaranteed. What's more, if your investments perform poorly, you may lose some of your original investment. The benefit, however, is the ability to earn more if your investments do well. You can set up variable annuities to produce long-term income and you can include a death benefit, too.
When you invest in a mutual fund, your money is pooled with other investors' funds and used to buy stocks, bonds and other assets. Mutual funds are popular because they are professionally managed and convenient. There are also many kinds of mutual funds, so you can pick funds that are in line with your savings goals. Mutual funds are not FDIC insured.
Unit Investment Trusts (UIT)
These are companies that own stocks and bonds and sell them to investors in units. Similar to mutual funds, UITs combine money from many investors, and the funds are professionally managed. UIT units have expiration dates, and when they expire, you'll be paid your portion of the UIT assets. However, you can redeem your units at any time. You can use UITs to provide monthly income, but income levels are not guaranteed.
Wealth Transfer Solutions
Wealth transfer is the passing of wealth to the next generation, typically upon the death of the wealth owner. Common wealth transfer solutions include wills, estate plans, trusts and life insurance. One of the main goals of wealth transfer planning is to lower the taxes paid by those inheriting the wealth. Life insurance is often included in wealth transfer planning because the death benefit can be used to pay estate taxes and other expenses.
529 College Plan
529 college plans are tax-advantaged accounts set up to pay for future education expenses. These plans are very flexible – anyone can open an account for a child, there are no contribution limits, and there are no age limits for using the money. If you make withdrawals for qualified educational expenses, you will not pay taxes on the earnings. If you withdraw money for non-qualified expenses you could face income taxes and a penalty.
Learn more about personal financial topics by checking out the other stories in this series including:
- Financial Fundamentals: Understanding Insurance
- Financial Fundamentals: Understanding Retirement Planning
The content provided is for informational purposes only. Neither BBVA USA, nor any of its affiliates, is providing legal, tax, or financial advice. You should consult your legal, tax, or financial advisor about your personal situation. Opinions expressed are those of the author(s) and do not necessarily represent the opinions of BBVA USA or any of its affiliates.
Links to third party sites are provided for your convenience and do not constitute an endorsement. BBVA USA does not provide, is not responsible for, and does not guarantee the products, services or overall content available at third party sites. These sites may not have the same privacy, security or accessibility standards.
|Securities and Investment Products:|
|ARE NOT DEPOSITS||ARE NOT FDIC INSURED|
|ARE NOT BANK GUARANTEED||MAY LOSE VALUE|
|ARE NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY|
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