PERSONAL FINANCE : PREPARING YOURSELF : A Pullout Guide To Investments

Where should you put your money? The choices are enormous and depend on your personal circumstances. How much risk can you take? How much current income do you need? Do you abhor volatility? How easily you will you need to sell the investment at a fair price to raise cash? Do you nees tax breaks? Do you want the investment for your individual retirement account? Here is a list of common investments for small investors to help you make those choices. They are ranked from least risky (with generally the lowest potential returns over time) to most risky (and generally the highest potential returns over time):

Definitions:

Safety of principal--Degree to which original investment will keep all of its value over time if held to maturity.

Current income--Size and reliability of regular income or dividend payments from the investment, starting as soon as you make the investment.

Income growth--Ability of current income payments to grow over time.

Capital Appreciation--Ability of original investment to increase in value over time to create capital gains. For bonds and other fixed-income investments, this also includes their ability to gain value if sold before maturity if interest rates fall.

Price stability--Ability of the original investment to maintain a relatively stable value over time, avoiding volatile price swings.

Liquidity--Ability of an investor to quickly realize cash from the sale of the investment at or close to fair market value.

Inflation hedge--Ability of investment’s total return (current income plus capital gains) to at least match inflation over time.

IRA suitability--Suitability of the investment for individual retirement accounts.

Minimum investment--Commonly available minimum investments. Lower minimums might be available in certain cases.

Fees--Usual sales commissions or other up-front fees to buy the investment. Fees might be higher if very small quantities are purchased and lower if large quantities are purchased. Does not include management fees or other annual charges, dealer markups, or back-end fees when selling the investment.

Buy through--Common outlets for purchasing the investment.

Investment: U.S. savings bonds, series EE Advantages: Safety through govt. backing; yield can rise; low minimum investment Disadvantages: Relatively low yields; must hold 5 years for chance at higher yield; no current income Safety of principal: Extremely high degree Current income: Little or no degree Income growth: Little or no degree Capital appreciation: Little or no degree Price stability: Extremely high degree Liquidity: Moderate to high degree Inflation hedge: Low degree IRA suitability: Low degree Tax benefit: Exempt from state and local tax; federal tax deferred until maturity Minimum investment: $25 Fee/buy through: Free through banks, S&Ls;, payroll plans Investment: Treasury bills (1 year or less maturities) Advantages: Safety through govt. backing; liquidity; tax benefits Disadvantages: Relatively low yields; high minimum investment Safety of principal: Extremely high degree Current income: Little or no degree Income growth: Little or no degree Capital appreciation: Little or no degree Price stability: Extremely high degree Liquidity: Moderate to high degree Inflation hedge: Low degree IRA suitability: Low degree Tax benefit: Exempt from state and local taxes; federal tax deferred until maturity Minimum investment: Just under $10,000 Fee/buy through: Free if bought through Federal Reserve bank or branch; $25 or more through brokerages, banks or dealers Investment: Bank money market accounts Advantages: Safety through federal deposit insurance; checking privileges; easy access to money Disadvantages: Relatively low yields; high minimum balance needed to earn market yield Safety of principal: Extremely high degree Current income: Moderate to high degree Income growth: Moderate to high degree Capital appreciation: Little or no degree Price stability: Extremely high degree Liquidity: Extremely high degree Inflation hedge: Low degree IRA suitability: Extremely high degree Tax benefit: Little or no degree Minimum investment: A great variation exists within this investment, making any classification misleading Fee/buy through: Free through banks, S&Ls; Investment: Bank certificates of deposit Advantages: Safety through federal deposit insurance; low minimum investment; ability to lock in yields Disadvantages: Early withdrawal penalties Safety of principal: Extremely high degree Current income: Moderate to high degree Income growth: Little or no degree Capital appreciation: Little or no degree Price stability: Extremely high degree Liquidity: Moderate to high degree Inflation hedge: Low degree IRA suitability: Extremely high degree Tax benefit: Little or no degree Minimum investment: $100-$1,000 Fee/buy through: Free through banks, S&Ls; small charges built into price through brokerages Investment: Money market mutual funds (taxable) Advantages: Access to money; links with other mutual funds; diversification Disadvantages: Relatively low yields Safety of principal: Extremely high degree Current income: Moderate to high degree Income growth: Moderate to high degree Capital appreciation: Little or no degree Price stability: Extremely high degree Liquidity: Extremely high degree Inflation hedge: Low degree IRA suitability: Extremely high degree Tax benefit: Little or no degree Minimum investment: $500 Fee/buy through: Free through mutual fund Investment: Treasury notes(1-10 year maturities) Advantages: Safety through govt. backing; liquidity; tax benefits Disadvantages: Lower rate than Treasury bonds and corporate bonds; risk of loss if sold before maturity Safety of principal: Extremely high degree Current income: Moderate to high degree Income growth: Little or no degree Capital appreciation: Moderate to high degree Price stability: Low degree Liquidity: Extremely high degree Inflation hedge: Little or no degree IRA suitability: Extremely high degree Tax benefit: Exempt from state and local tax Minimum investment: $1,000 Fee/buy through: Free if bought through Federal Reserve bank or branch; $25 or more through brokerages, banks or dealers Investment: Ginnie Maes Advantages: Higher yields than other govt. securities; safety through govt. backing Disadvantages: Monthly payments fluctuate; risk of loss if sold before maturity Safety of principal: Extremely high degree Current income: Extremely high degree Income growth: Little or no degree Capital appreciation: Moderate to high degree Price stability: Low degree Liquidity: Extremely high degree Inflation hedge: Little or no degree IRA suitability: Extremely high degree Tax benefit: Little or no degree Minimum investment: $25,000 for individual issues; $500 through mutual funds Fee/buy through: 1% or less through brokerages; 0-8.5% through mutual funds, unit investment trusts Investment: Treasury bonds (10-30 year maturities) Advantages: Safety through govt. backing; high yields; liquidity; tax benefits Disadvantages: Risk of loss if sold before maturity Safety of principal: Extremely high degree Current income: Extremely high degree Income growth: Little or no degree Capital appreciation: Moderate to high degree Price stability: Low degree Liquidity: Extremely high degree Inflation hedge: Little or no degree IRA suitability: Extremely high degree Tax benefit: Exempt from state and local tax Minimum investment: $1,000 Fee/buy through: Free if bought through Federal Reserve bank or branch; $25 or more through brokerages, banks or dealers Investment: Zero-coupon Treasury bonds Advantages: Safety through govt. backing; low minimum investment; interest reinvested; chance for capital gain if sold before maturity Disadvantages: High risk of loss if sold before maturity; no interest payments until maturity but taxes due each year Safety of principal: Extremely high degree Current income: Little or no degree Income growth: Little or no degree Capital appreciation: Moderate to high degree Price stability: Little or no degree Liquidity: Moderate to high degree Inflation hedge: Little or no degree IRA suitability: Extremely high degree Tax benefit: Exempt from state and local tax Minimum investment: $100 Fee/buy through: 0.2%-5% built in commission through brokers; 0-8.5% through mutual funds Investment: Municipal bonds, short term Advantages: Exempt from federal tax; some also exempt from state and local tax Disadvantages: Low after-tax yield for low tax brackets Safety of principal: Moderate to high degree Current income: Moderate to high degree Income growth: Little or no degree Capital appreciation: Extremely high degree Price stability: Moderate to high degree Liquidity: Moderate to high degree Inflation hedge: Extremely high degree IRA suitability: Little or no degree Tax benefit: Exempt from federal tax; may be exempt from state and local tax Minimum investment: $5,000 for individual new issues; 0-$100 through mutual funds Fee/buy through: 1%-5% through brokers; 0-8.5%through mutual fund companies, unit investment trusts Investment: Municipal bonds, long term Advantages: Exempt from federal tax; some also exempt from state and local ax; higher yields than short-term munis Disadvantages: Low after-tax yield for low tax brackets; risk of loss if sold before maturity Safety of principal: Moderate to high degree Current income: Moderate to high degree Income growth: Little or no degree Capital appreciation: Moderate to high degree Price stability: Low degree Liquidity: Moderate to high degree Inflation hedge: Little or no degree IRA suitability: Little or no degree Tax benefit: Exempt from federal tax; may be exempt from state and local tax Minimum investment: $5,000 for individual new issues; 0-$100 through mutual funds Fee/buy through: 1%-5% through brokers; 0-8.5% through mutual funds, unit investment trusts Investment: Annuities Advantages: Monthly income for retirement; tax-deferred earnings Disadvantages: High sales and surrender charges on some plans; unpredictability of future earnings Safety of principal: Moderate to high degree Current income: Little or no degree Income growth: Little or no degree Capital appreciation: Moderate to high degree Price stability: A great variation exists within this investment, making any classification misleading Liquidity: A great variation exists within this investment, making any classification misleading Inflation hedge: A great variation exists within this investment, making any classification misleading IRA suitability: Low degree Tax benefit: Tax-deferred earnings Minimum investment: $5,000 Fee/buy through: Often no fee; through insurance companies, brokerages Investment: Single-premium whole life insurance (cash value) Advantages: Forced savings; tax-deferred earnings; ability to borrow at below-market rates; death benefits Disadvantages: High sales and surrender charges on some plans; uncertain tax law outlook Safety of principal: Moderate to high degree Current income: Little or no degree Income growth: Little or no degree Capital appreciation: Moderate to high degree Price stability: A great variation exists within this investment, making any classification misleading Liquidity: A great variation exists within this investment, making any classification misleading Inflation hedge: A great variation exists within this investment, making any classification misleading IRA suitability: Little or no degree Tax benefit: Tax-deferred earnings Minimum investment: $5,000 Fee/buy through: Varies widely; often built into premium; through insurance companies, agents and brokerages Investment: Corporate bonds, AAA grade Advantages: Higher yields than Treasuries, municipal bonds Disadvantages: Risk of loss if sold before maturity Safety of principal: Moderate to high degree Current income: Extremely high degree Income growth: Little or no degree Capital appreciation: Moderate to high degree Price stability: Low degree Liquidity: Moderate to high degree Inflation hedge: Little or no degree IRA suitability: Extremely high degree Tax benefit: Little or no degree Minimum investment: $1,000 for individual issues; $500 through mutual funds Fee/buy through: 0.2%-2% through brokerages; 0-8.5% through mutual funds, unit investment trusts Investment: Personal home Advantages: Housing; tax benefits; appreciation potential Disadvantages: High commissions and loan origination fees; maintenance costs Safety of principal: Moderate to high degree Current income: Little or no degree Income growth: Little or no degree Capital appreciation: Moderate to high degree Price stability: Low degree Liquidity: Low degree Inflation hedge: Extremely high degree IRA suitability: Little or no degree Tax benefit: Mortgage interest deductible Minimum investment: A great variation exists within this investment, making any classification misleading Fee/buy through: 3%-6% through realtors; less when buying directly from homeowners Investment: Common stocks, blue chip Advantages: Potential for capital gains and dividends Disadvantages: Risk of loss if stock price declines Safety of principal: Little or no degree Current income: Low degree Income growth: Low degree Capital appreciation: Moderate to high degree Price stability: Little or no degree Liquidity: Extremely high degree Inflation hedge: Low degree IRA suitability: Moderate to high degree Tax benefit: Little or no degree Minimum investment: None if individual issues; $250 through mutual funds Fee/buy through: 1%-3% through brokerages; 0-8.5% through mutual funds Investment: Common stocks, utilities Advantages: Less volatile than other stocks; high dividends Disadvantages: Lower capital gains than other stocks Safety of principal: Little or no degree Current income: Extremely high degree Income growth: Moderate to high degree Capital appreciation: Low degree Price stability: Low degree Liquidity: Extremely high degree Inflation hedge: Low degree IRA suitability: Extremely high degree Tax benefit: Little or no degree Minimum investment: None if individual issues; $100 through mutual funds Fee/buy through: 1%-3% through brokerages; 0-8.5% through mutual funds Investment: Real estate investment trusts Advantages: High dividends; inflation hedge; inexpensive way to invest in real estate; diversification Disadvantages: Risk of loss; no tax benefits as in other real estate investments Safety of principal: Little or no degree Current income: Moderate to high degree Income growth: Extremely high degree Capital appreciation: Moderate to high degree Price stability: Little or no degree Liquidity: Extremely high degree Inflation hedge: Extremely high degree IRA suitability: Extremely high degree Tax benefit: Little or no degree Minimum investment: None if individual issues Fee/buy through: 1%-3% through brokerages Investment: Real estate limited partnerships Advantages: High yields; inflation hedge; inexpensive way to invest in real estate; diversification Disadvantages: Risk of loss Safety of principaal: Little or no degree Current income: Extremely high degree Income growth: Extremely high degree Capital appreciation: Moderate to high degree Price stability: Little or no degree Liquidity: Low degree Inflation hedge: Extremely high degree IRA suitability: Moderate to high degree Tax benefit: Credits available for low-income housing and historic rehabilitations Minimum investment: $1,000-$25,000 Fee/buy through: 8%-15% through brokerages; 0-8.5% through mutual funds Investment: Corporate bonds, non-investment grade (junk bonds) Advantages: Highest yields among bonds Disadvantages: High default risk; risk of loss if sold before maturity Safety of principal: Little or no degree Current income: Extremely high degree Income growth: Little or no degree Capital appreciation: Moderate to high degree Price stability: Low degree Liquidity: Moderate to high degree Inflation hedge: Low degree IRA suitability: Moderate to high degree Tax benefit: Little or no degree Minimum investment: $1,000 for individual issues; $500 through mutual funds Fee/buy through: 0.5%-5% through brokerages; 0-8.5% through mutual funds, unit investment trusts Investment: Fine art Advantages: Visual enjoyment; potential for gain in value Disadvantages: Hard to appraise, may be hard to sell; no current income Safety of principal: Little or no degree Current income: Little or no degree Income growth: Little or no degree Capital appreciation: Low degree Price stability: Low degree Liquidity: Low degree Inflation hedge: Moderate to high degree IRA suitability: Little or no degree Tax benefit: Little or no degree Minimum investment: A great variation exists within this investment, making any classification misleading Fee/buy through: 10%-30% through art auctions, dealers Investment: Common stocks, small company growth Advantages: High potential for capital gains Disadvantages: High volatility; risk of loss Safety of principal: Little or no degree Current income: Low degree Income growth: Low degree Capital appreciation: Extremely high degree Price stability: Little or no degree Liquidity: Moderate to high degree Inflation hedge: Moderate to high degree IRA suitability: Low degree Tax benefit: Little or no degree Minimum investment: None if individual issues; $250 through mutual funds Fee/buy through: 1%-3% through brokerages; 0-8.5% through mutual funds Investment: Gold bullion coins Advantages: Inflation hedge Disadvantages: Volatility; no current income Safety of principal: Little or no degree Current income: Little or no degree Income growth: Little or no degree Capital appreciation: Moderate to high degree Price stability: Little or no degree Liquidity: Moderate to high degree Inflation hedge: Extremely high degree IRA suitability: Low degree Tax benefit: Little or no degree Minimum investment: A great variation exists within this investment, making any classification misleading Fee/buy through: 2%-8% through coin dealers, banks, brokerages Investment: Stock options Advantages: High leverage; high potential for gains; low minimum investment Disadvantages: Risk of losing more than initial investment Safety of principal: Little or no degree Current income: Little or no degree Income growth: Little or no degree Capital appreciation: Extremely high degree Price stability: Little or no degree Liquidity: Moderate to high degree Inflation hedge: Little or no degree IRA suitability: Little or no degree Tax benefit: Little or no degree Minimum investment: $5-$25 Fee/buy through: $3-$25/contract through brokerages, $20 minimum per transaction Investment: Oil and gas limited partnerships Advantages: High potential gains; inflation hedge; tax benefits Disadvantages: High risk of losses or no income, somewhat illiquid Safety of principal: Little or no degree Current income: Moderate to high degree Income growth: Moderate to high degree Capital appreciation: Extremely high degree Price stability: Little or no degree Liquidity: Low degree Inflation hedge: Extremely high degree IRA suitability: Low degree Tax benefit: Certain partnerships offer high writeoffs Minimum investment: $2,000-$5,000 Fee/buy through: 8%-15% through brokerages Investment: Commodity futures Advantages: Potential to earn far more than initial investment; low minimum investment Disadvantages: Potential to lose far more than initial investment; volatility Safety of principal: Little or no degree Current income: Little or no degree Income growth: Little or no degree Capital appreciation: Extremely high degree Price stability: Little or no degree Liquidity: Extremely high degree Inflation hedge: Extremely high degree IRA suitability: Little or no degree Tax benefit: Little or no degree Minimum investment: A great variation exists within this investment, making any classification misleading Fee/buy through: $25-$100/contract through brokerages; 2.5%-10% through commodity funds and managed accounts