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Week of November 23rd, 2007 • Next Question

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Q:Can you briefly explain the different types of investment vehicles — stocks, bonds, mutual funds, annuities, saving accounts, CDs?

A: With stocks you are purchasing ownership of a company in the form of shares.

When you purchase a bond, you are lending money to a government, municipality, corporation, federal agency or other entity. In return for the loan, that entity promises to pay you a specified rate of interest during the life of the bond and to repay the face value of the bond (the principal) on the date that it comes due. When you buy a mutual fund, you are hiring a professional investment manager to purchase stocks, bonds and other securities on your behalf.

A fixed annuity is a contract between you and an insurance company. Either a lump-sum payment or series of payments is made and in return, the insurer agrees to make periodic payments to you beginning immediately or at some future date. Fixed annuities typically offer tax-deferred growth of earnings and may include a death benefit that will pay your beneficiary a guaranteed minimum amount, such as your total purchase payments. Guarantees are based on claims paying ability of the issuing company.

Savings accounts are accounts offered by commercial banks, savings and loan associations, credit unions, and mutual savings banks. Savings accounts allow you to earn a small amount of interest each month and require a low minimum balance. Accounts are insured up to $100,000 per insured by the FDIC.

A certificate of deposit or CD is a time deposit offered by commercial banks, savings and loan associations, credit unions and mutual savings banks. A CD has a specific, fixed term (often three months, six months, one to five years), and a fixed interest rate. The interest is paid on the maturity date and there is an interest penalty if you cash in early. CDs typically have larger minimum balances than savings accounts. Accounts are also insured up to $100,000 by the FDIC with the exception of IRA accounts that are insured up to $250,000

This article is intended to provide general information only and is not intended to provide investment advice or any recommendation to buy, sell or hold securities. The content of this article is not appropriate for the purposes of making a decision to carry out a transaction or trade, nor does it provide any form of advice (investment, tax, legal) amounting to investment advice or make any recommendations regarding particular financial instruments, securities, investments or products. Any information herein has no regard to the specific investment objectives, financial situation, or particular needs of any specific investor, and investments discussed may not be suitable for all investors. Neither NYLIM nor New York life will be liable for any errors or inaccuracies in such content or any actions taken in reliance thereon. As a registered investment advisor, NYLIM may render investment advice for compensation only as permitted under applicable US and state law.

Questions will usually be answered within the next bi-weekly posting of Ask Joan. If a question is particularly involved, or the answer depends on the specific circumstances, it may be possible to give only a very general answer. In these cases, you will be advised to seek more specific advice.