There are three basic asset classes: stocks, bonds and cash. In this section, we'll present an overview of each asset class.

Stocks

A stock is an investment that represents a share of ownership in a company. A few common types of stocks include:

• Large-cap: The largest 5% of domestic companies in terms of capitalization.
• Mid-cap: The next largest 15% of domestic companies in terms of capitalization.
• Small-cap: The remaining 80% of companies.
• International: Foreign (non-U.S.) companies.

 

You may be wondering what capitalization means. It's the total stock market value of all shares of a company's stock, calculated by mutiplying the stock price by the number of shares outstanding.

When you're first starting out, think about investing in a mutual fund as opposed to an individual stock or bond.

 

Bonds

A bond is like an IOU: you lend a borrower some money, and in return receive a promise of repayment, plus interest, at a set date. There are many types of bonds with varying degrees of risk, including:

• Corporate bonds: Issued by corporations, these range from high-risk, non-investment-grade bonds (also called "junk bonds") to low-risk, investment-grade, AAA-rated bonds.
• Municipal bonds: Also called "munis," they're issued by state or local governments and are popular among investors in high tax brackets, thanks to the fact that they usually are free from federal and state taxes.^†
• Government bonds: Issued by the U.S. Treasury or other federal agencies, they have fixed interest rates and are considered quite safe. While they are free from state taxes, they are subject to federal taxes.

 

Cash and cash equivalents

These types of investments are low-risk and low-return, but they're smart for shorter-term goals, day-to-day expenses and emergency funds.

• Checking, savings and money market accounts: Good for day-to-day expenses and an emergency reserve. Be sure to seek out an account with a competitive interest rate, but watch out for minimum-balance requirements and fees.
• Shorter-term CDs and T-bills: A nice addition to a strategic cash allocation. These investments tend to pay slightly more interest, but typically must be held for periods of three to 12 months.
• Longer-term CDs, ultra-short bond funds and stable value funds: Another smart option for cash allocation.

 

 

Investors should consider carefully information contained in the prospectus, including investment objectives, risks, charges and expenses. You can request a prospectus by calling 800-435-4000. Please read the prospectus carefully before investing. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than original cost.

An investment in a money fund is neither insured nor guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. Although money funds seek to preserve the value of your investment at $1 per share, it is possible to lose money by investing in the fund.

^† Income may be subject to the alternative minimum tax (AMT).

Bond funds are subject to increased loss of principal during periods of rising interest rates.

Fixed income investments are subject to various risks, including changes in interest rates, credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications and other factors.

Unlike mutual funds, certificates of deposit offer a fixed rate of return and are FDIC-insured.

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The type of savings and investment strategies mentioned may not be suitable for everyone. Each investor needs to review a security transaction or strategy for his or her own particular situation. The examples mentioned are for informational purposes only and are not intended to represent results you should expect in the future. Data contained here is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.