Tax-Saving with Municipal Bonds

Municipal bonds are debt obligations of states, cities, and other public subdivisions. Most, but not all, of them pay interest that is exempt from federal income taxes. This interest is also often exempt from state and local taxes. A small proportion pays taxable interest or interest that is subject to the alternative minimum tax. Municipal bonds can be purchased through nearly any brokerage company. Investment companies that hold portfolios of municipal funds can also enjoy the tax-exempt income that they provide.

Understanding Bond Yields and Interest

Investors normally make decisions about which bonds to invest in based on their YTMs. Because the YTM is a complex calculation which involves trail and error, it's usually accomplished with the help of a programmable business calculator. Bonds pay interest in arrears; in other words, they pay interest only after it's earned.

Understanding a Stock's Beta

A stock's beta is a comparative measure of how the stock performs relative to the market as a whole. The basic premise is that a rising market generally tends to boost most stock values with it, while a falling market is apt to lower them. The beta is a calculated method of determining just how close the correlation between the two is.

Guaranteed Investment Contracts

Guaranteed investment contracts are similar to certificates of deposit that can be purchased at banks; however, they are sold by insurance companies. Like money market funds, they're very safe investments; and like all investments that are considered to be "very safe", they won't make you very much money. Also known by other names - fixed-income fund, stable value fund, capital-preservation fund, or guaranteed fund.

Junk Bonds

junk bonds can be expected to do well in a strong economy, because there's less risk of the company's default. During periods of economic weakness, however, the risk of default rises. For the junk bond investor, broad diversification of junk bond issues can lessen this risk. Junk bonds are not a special type of bond. They are, in fact, regular high-risk, low-rated corporate bonds. Junk bonds have Standard & Poor's ratings of BB or less, which includes debt instruments of poor quality that may be close to default. Some junk bonds have no ratings whatsoever.

Preferred Stock

Preferred stock is a specific type of stock which has very different characteristics from common stock. Like common stock, proceeds from the sale of preferred stock are recorded by the company on its balance sheet as equity; or, an ownership interest. For all practical purposes, however, investors consider preferred stocks to be another type of debt security; specifically, one which normally pays a fixed return in the form of quarterly dividends instead of semi-annual interest payments, as some bonds do.