SheSue Experience

The second class of my Investing Fundamentals course was on investing for income.  If you find that you need additional monthly income, there are investments that will satisfy this need, but they will not create any growth over time.  These types of investments include money market accounts, CD’s, savings bonds and tax-free bonds.  These are also called fixed income securities or loanership investments.  The basic traits of these investments are:

1. You loan your money
2. The borrower pays you interest on the borrowed money
3. The interest rate is fixed for the entire time of the loan
4. The length of the loan is fixed
5. The borrower repays you your money when the loan ends

You can buy these types of investments individually, or they can be packaged into: Bond Unit Trusts, Mutual Funds or Variable Annuities. Investment managers group together similar individual investments and you invest in the package. This allows you to invest smaller amounts. But you are still loaning your money for a fixed rate and a fixed period of time.

Money Market funds are similar to the above packages, but they group together a variety of securities. You do have to come up with a higher deposit, usually $1,000, but your interest rate is usually higher and you can draw the money out at any time.

Certificates of Deposit, or CD’s are loans you make to a bank or savings and loan. The longer you loan the money, the more interest you earn. Typically CD’s have maturity dates of 3 months – 10 years. They are considered to be very safe because they are federally insured. But once again, they offer no growth on principal. You loan your money and get it back with interest.

For the rest of the class, we discussed bonds. There are a variety of bonds such as savings bonds, treasury bonds, utility bonds and junk bonds. Once again, you are loaning your money for a fixed period of time, but this time, the interest rates can fluctuate which can affect the final value of your bond. We also discussed bond ratings. Between A and D, just like a grade, you should go for the A or B bonds.

Finally we talked about laddering which can be used for bonds or CD’s. Laddering is a strategy of owing bonds or CD’s with different maturity dates that will provide an on-going income. To begin, you purchase short term, intermediate term and long term investments. Example:

Short term—expires, purchase long term——————– long term

Intermediate term———expires, purchase long term———————– long term

Long term———————————-expires, purchase long term——————————– long term

The final thoughts were about figuring how much money you need, and then investing the rest in growth securities.