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Comparison Of Different Types of Investment Vehicles

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The following chart summarizes the types of available investment vehicles so you can compare them to each other easily.

For more information about each type of investment vehicle, including a description of what it is and how to maximize their use see: Investments: Basics. For instance, the article describes how to maximize interest rates on CDs.

Type

Rate of Return


(Specific rates are rounded, for a 10 year time-period, and do not necessarily predict future performance.)

Liquidity

Marketability

Risk

Taxes

Checking & Savings Bank Accounts
(both local bank and on-line accounts)

Rates for these "cash equivalent" type investments vary directly with the interest rate.

Current rates vary from less than 1% for some checking and savings accounts to up around 5% for some Certificates of Deposit and Money Market Accounts.

Online savings accounts usually have better rates than local brick-and-mortar banks.

www.bankrate.com offsite link www.cashcow.com
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provide current rate information and comparisons.


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Very high

Very High

Risk-free up to $250,000 due to FDIC insurance.

All interest is taxable at your ordinary income rate, whether you withdraw the interest or not.

Certificates of Deposit (CDs)

High, but early withdrawal penalty may apply.

Very High

Risk-free up to $250,000 due to FDIC insurance.

Interest taxed at your ordinary income rate.

Money Market Accounts

High

High

Low. No loss of principal but rates fluctuate with interest rates.

Earnings taxable at ordinary income rates. Tax-exempt money market mutual funds available.

Treasury Bills (T-Bills)

4%

High

High

Virtually Default Risk Free

Interest taxable as income but ONLY at Federal level. Possible capital gains taxes.

Treasury Notes and Bonds (T-Notes and T-Bonds)

5%

High to moderate; may have to sell at a loss if interest rates have increased.

High

Virtually none; backed by US Govt. Some risk the interest rate may change.

Interest taxable as income but ONLY at Federal level. Possible capital gains taxes.

Municipal Bonds

Varies with type of bond (taxable vs. non-taxable.)

Moderate

High to moderate

Low to moderate. Municipal bond insurance is available.

Interest is exempt from federal taxes; may be subject to state or local taxes. Capital gains may apply.

Corporate Bonds

5%

Moderate

High

Moderate: Varies with the financial strength of the underlying company.

Interest is taxable and capital gains taxes may also apply.

Stocks

7-13%

Low

High to Low, depending on whether or not the stock is actively traded.

Moderate to Very High: Varies with the size/strength of the company or, in a fund, companies owned by the fund.

Unless held in a tax-deferred retirement account, dividends taxable at ordinary income rates and capital gains.

Real Estate

N/A

Very Low

Moderate/Low

High

Varies

Gold, Silver & Collectibles

N/A

Very Low

Moderate to Low

Very High

Capital Gains on collectibles taxed at 28%.

Futures, Commodities, and Options.

N/A

Very Low

Moderate to None

Very High

Varies; some may generate large short-term capital gains and/or losses.


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