Corporate Stocks and Bonds
Corporate stocks and bonds are ways to invest in individual corporations. Stock represents
ownership of a company, and its market value changes with earnings expectations for that
business and the industry in which it operates. A bond represents a debt obligation of a
company. Interest paid on a bond may be constant, but its price reacts to changes in the
issuer’s financial prospects and the outlook for interest rates. If you are considering
an active trading or “day trading“ strategy, please review the document,
“Active Trading or “Day Trading” Strategies
”
for information about special risks and considerations.
U.S. Treasury Obligations
U.S. Treasury obligations are bonds or certificates for which principal and interest are secured by the “full faith and credit of the U.S. Government.” Market values of Government securities adjust to factors affecting fixed-income instruments; namely inflation and interest rate trends.
Municipal (“Tax-Exempt”) Bonds
Municipal bonds, also known as tax-exempt bonds, represent the debt of municipalities and states, often incurred to finance capital projects. Interest from such bonds generally is not subject to federal income tax. Municipal bond prices fluctuate with changes in interest rates, tax rates, or the creditworthiness of the issuer.
Zero-Coupon Bonds
Zero-coupon bonds are debt instruments that pay no current interest. Their stated yield to maturity is a function of the discounted purchase price, face amount, and maturity. However, zero-coupon bondholders are deemed to have received interest each year for tax purposes. Also, since the reinvestment rate is locked in, market value tends to be more volatile in response to changes in interest rates.
Options
Options are contracts giving the holder a right to buy or sell a specified amount of the underlying security at a stated price before a certain date. Option strategies range from conservative to highly speculative. You should understand the strategy as well as the risks and commission charges before trading in options.
Mutual Funds
Mutual funds are professionally managed investment companies that offer a degree of diversification, liquidity, and flexibility that few investors can achieve on their own. A “family” of funds may cover a wide spectrum of securities, financial markets, and investment objectives. Mutual fund share prices reflect the value of underlying portfolio holdings, net of the fund’s internal fees and expenses, including payments to the fund’s advisor and transfer agent. Distribution costs are covered in various ways, including front-end or deferred sales charges and/or distribution and service fees. Such expenses are detailed in the fund’s prospectus.
Despite the emphasis often placed on a fund’s track record, past performance is not an indication of future results.
Money Market Funds
Money market funds hold short-term debt instruments (taxable and tax-exempt) and offer a relatively high degree of safety and stability of principal. Dividends change with short-term interest rates. Money market funds are a popular alternative to bank checking and savings accounts, but they do not offer deposit insurance protection.
Consolidated Cash Management
Consolidated cash management can offer a more integrated approach to handling your short-term “ready” assets and your longer term investment positions. KMS employs specific money market funds with enhanced features such as full-service checking and a debit card linked to your brokerage account.
Certificates Of Deposit
Certificates of deposit from savings institutions around the country offer competitive rates and a range of maturities. Timely payment of principal and interest is federally insured, but premature redemption can incur interest penalties or secondary market risk.
Unit Investment Trusts
Unit investment trusts are fixed portfolios of securities that are professionally selected but not actively traded during the life of the trust. Secondary markets are maintained in many trust units, but most are designed to be held for income and/or appreciation until maturity.
Variable Life Insurance and Annuities
Variable life insurance and annuities combine insurance benefits and attractive investment features. The term “variable” refers to those investment choices and the fact that their capital value and returns do fluctuate. These underlying investments provide long-term growth potential, tax-deferred or tax-free earning, and the ability to make nontaxable transfers among the portfolios as your financial needs or market conditions change. Given the wide variety and extensive features offered by such vehicles, it is important to deal with a knowledgeable Representative who can access a number of competitive products.
The Use of “Margin”
The use of margin in a brokerage account is like any credit facility - a valuable tool if
used prudently and in keeping with your investment objectives and financial wherewithal.
However, the extension of credit for buying and holding securities is subject to strict federal
regulations. It is important to remember that holding investments on margin increases the
potential for loss as well as gain. If you are considering the use of margin, please review
the document, “Using Margin In Your Brokerage Account.”
Fixed Rate Insurance Products
Fixed rate insurance products include single-premium deferred annuities, universal life, and single-premium life policies. Along with death benefit protection, you can take advantage of guaranteed rates of return while providing security to your family. Although you may not think of life insurance as part of your investment portfolio, it can play an important role in prudent financial and estate planning.
Term Insurance
Term insurance has the fundamental role of guarding your family or business against financial loss due to premature death. These policies are often most appropriate when the objective is to establish such protection with the minimum current premium commitment.
Direct Participation Programs
Direct participation programs (public and private limited partnership offerings) involve direct investment in the operating profits, losses, and capital growth of a business venture. You should consider carefully the inherent risks of longer-term illiquidity, leverage, lack of diversification, and tax complexity. While your potential loss is limited to the amount you invest, such a loss is possible.
Real Estate Investment Trusts
Real estate investment trusts are a common way of pooling investor capital in diversified portfolios of real property. Shares of many REITs are listed on national exchanges and trade much like common stock. A REIT may invest as an equity owner, a mortgage lender, or both, according to its prospectus. Income is taxed only at the shareholder level, so REITs may offer an attractive level of after-tax income as well as appreciation potential.
