Investments types 3 Government Grants

Keogh Plans. Keoghs are retirement plans for people who are self-employed. Usually a maximum of 25% of your net income (or a maximum of $40,000) can be contributed to these plans on a tax-deferred basis. Keoghs are more complicated than an IRA, 401(k) or 403(b), so get tax advice before setting up a plan.

Stocks. When you buy stocks, you acquire shares of a company’s assets. If the company does well, you may receive periodic dividends and/or be able to sell your stock at a profit. If the company does poorly, the stock price may fall and you could lose some or all of the money you invested.

Bonds. When you purchase a bond, you are essentially loaning money to a corporation, the U.S. government or a local government for a certain period of time, called a term. The bond certificate promises that the issuing entity will repay you on a specified date with a fixed rate of interest. Bond terms can range from a few months to
30 years.

Bonds are generally considered a safer investment than stocks because bondholders are paid before stockholders if a company becomes insolvent. Independent bond-rating agencies such as Standard & Poor’s and Moody’s rate the likelihood that any given bond will default. You can find bond ratings in each agency’s publications at your
local library.

Although there are no penalties for selling a bond before the end of its term, the value of the bond is subject to interest rate fluctuations. If interest rates have risen since you bought your bond, you may have to sell it at less than face value. It is also possible that the bond’s yield will turn out to be less than the rate of inflation.

Some of the bonds available include:

• Savings bonds, Treasury bills (commonly called T-bills) and other securities issued by the U.S. government.
• Zero coupon bonds, which are similar to savings bonds. No periodic payments of interest are made. The bonds are bought at a discount and are worth their face value upon maturity.
• Municipal bonds (munis), which are sold by states, cities and other local governments. They are often tax exempt, which means you will pay no taxes on the interest earned.
• Insured bonds, which are less risky but generally pay lower interest rates because of the protection.
• Convertible bonds, which can be converted into stock.
• High-yield bonds, commonly referred to as junk bonds, which are issued by corporations or governments with low ratings. They are very risky.