Federal Agricultural Mortgage Corporation

Transcription

If you are interested in investing but are wary of stocks or are simply looking to diversify the asset classes in your portfolio, debt securities may be worth considering. To use a simplified example, a debt security is essentially an I.O.U. As an investor, you lend money to an issuer for these securities and the issuer, in turn, agrees to repay the debt at a later date, often along with any accrued interest. There are several types of debt securities to be aware of. Let’s explore them, beginning with the U.S Government securities. These securities are backed by the full faith and credit of the United States Government. Savings bonds and U.S. treasury issues, such as treasury bills, notes, bonds and treasury inflation-protected securities or TIPS, are included in this category. Government agency issues are debt securities issued by U.S government agencies and corporations. Some better known agencies include the Federal National Mortgage Association, also known as FANNIE MAE; the Federal Home Loan Mortgage Corporation, or FREDDIE MAC; the Federal Agricultural Mortgage Corporation, or FARMER MAC; and the Government National Mortgage Association or GINNIE MAE, which is the only agency fully backed by the U.S government. Municipal bonds are securities issued by cities, states, and school districts, and other such entities to fund public projects. Some of these bonds may be tax advantaged, such as being free from federal income tax. There are two types of municipal issues. General obligation bonds, often issued for public utilities, are backed by the taxing authority of the issuer. Revenue bonds are typically backed by fees associated with the use of the funded project, like a public airport. Finally, corporate bonds are issued by corporations to build capital and are backed by the credit of the issuer. As a result, a corporation’s ability to repay their investors is strongly tied to its success. As with all securities, it’s important to understand the risks of bond investing such as ‘call risk’- or the chance your bond will be bought back by the issuer prior to the maturity date - and ‘default risk’ - or the potential that the issuer goes bankrupt and you lose your investment. Evaluating your current and future liquidity needs, investment horizon, and risk tolerance will help you determine which investments are right for you. To learn more about this and other investment topics, subscribe to the Zions Direct YouTube channel.