Investment Products: Your Choices

Stocks and Bonds
Mutual Funds

When you make an investment, you are giving your money to a company or an enterprise, hoping that it will be successful and pay you back with even more money.

Some investments make money, and some don’t. You can potentially make money in an investment if:

• The company performs better than its competitors.
• Other investors recognize it’s a good company, so that when it comes time to sell your investment, others want to buy it.
• The company makes profits, meaning they make enough money to pay you interest.

Here are some kinds of investments you may consider making:

Stocks and Bonds
Many companies offer investors the opportunity to buy either stocks or bonds. The following example shows you how stocks and bonds differ.

Let’s say you believe that a company that makes automobiles may be a good investment. Everyone you know is buying one of its cars, and your friends report that the company’s cars rarely break down and run well for years. You either have an investment professional investigate the company and read as much as possible about it, or you do it yourself.

After your research, you’re convinced it’s a solid company that will sell many more cars in the years ahead. The automobile company offers both stocks and bonds. With the bonds, the company agrees to pay you back your initial investment in 10 years, plus pay you interest twice a year at the rate of 8% a year.

If you buy the stock, you take on the risk of potentially losing a portion or all of your initial investment if the company does poorly or the stock market drops in value. But you also may see the stock increase in value beyond what you could earn from the bonds. If you buy the stock, you become an “owner” of the company.

You wrestle with the decision. If you buy the bonds, you will get your money back plus the 8% interest a year. And you think the company will be able to honor its promise to you on the bonds because it has been in business for many years and doesn’t look like it could go bankrupt. The company has a long history of making cars and you know that its stock has gone up in price by an average of 9% a year, plus it has typically paid stockholders a dividend of 3% from its profits each year.

You take your time and make a careful decision. Only time will tell if you made the right choice. You’ll keep a close eye on the company and keep the stock as long as the company keeps selling a quality car that consumers want to drive, and it can make an acceptable profit from its sales.

Mutual Funds
Because it is sometimes hard for investors to become experts on various businesses — for example, what are the best steel, automobile, or telephone companies — investors often depend on professionals who are trained to investigate companies and recommend companies that are likely to succeed.

Since it takes work to pick the stocks or bonds of the companies that have the best chance to do well in the future, many investors choose to invest in mutual funds. Read more about mutual funds.

Contact your Johnson Bank personal banker for more information.

Source: http://www.sec.gov/investor/pubs.shtml