Long-term Investing Vehicles

1. Stocks

Stocks are a convenient way for individuals to own parts of small and large businesses. Common stock is more than just a piece of paper. When you buy a share of stock, you are taking a proportional share of ownership in a company. Together, the company is owned by all the shareholders, and each share represents a claim on assets of the company. As the value of the company changes up or down, the value of its share rises or falls. Stock prices are based on projections of future earnings by the company—a growth in earnings increases the likelihood that its stock price will rise and vice versa.

Other factors that affect stock prices in the short term are enthusiasm, fear, rumors by investors, and news reflecting domestic and international events. But, in the long term, the main drivers that determine whether the stock price will go up, down or sideways are company earnings. Increasing earnings raise profits and stock prices.

Since the end of World War II, through many ups and downs, the average large company stock has returned about 10% on the average—well ahead of inflation, and return on bonds, real estate and other savings vehicles. As a result, stocks are the best way to build and grow wealth for long term.

As with most things in life, potential risk and reward are part of owning stock in a large or growing business—the long-term growth of assets and a full share of the risk inherent in operating the business are the common traits of stock ownership.

2. What Are Bonds?

Bonds are similar to IOUs. When you purchase a bond, you are lending money to a government, municipality, corporation, federal agency or other entity legally known as an Issuer. In return for the money you loan it, the issuer provides you with a bond in which it promises to pay a specified rate of interest periodically during the life of the bond and to repay the face value of the bond (the principal) when it matures, or comes due. Among the types of bonds available to investors are: U.S. government securities, municipal bonds, corporate bonds, mortgage and asset backed securities, federal agency securities, and foreign bonds. Because bonds pay interest, mostly semiannually, which means they can provide a predictable income stream, many investors buy bonds for that expected income and also to preserve their capital investment. Bonds also can be called bills, notes, debt securities, or debt obligations.

Bond prices move in the opposite direction of interest rates.
When interest rates rise, bond prices fall, and vice versa—an inverse relationship. While the periodic interest payments to an investor are steady, the principal amount invested in the bonds will fluctuate as interest rates go up or down during the life of the bonds. However, upon maturity of the bonds, the price and value fluctuations would not matter as the investor will get back the original face value of the bonds, along with all the scheduled interest payments based upon the paying ability of the issuer.

3. Mutual Funds

A mutual fund is a company that pools money from many investors and invests the money in stocks, bonds, short-term money-market instruments, other securities or assets, or some combination of these investments. The combined holdings the mutual fund owns are known as its portfolio. Each share represents an investor's proportionate ownership of the fund's holdings and the income those holdings generate. Instead of managing your money yourself, you turn over that responsibility to professionals who make the day-to-day investment decisions.

Types of Annuities

1. Overview of Fixed Annuity

Fixed annuities are interest-based vehicles similar to bank-issued CDs, but geared specifically towards retirement savings. Typically, a lump-sum of cash locked in with an interest rate for a period ranging from 3 to 15 years. The initial deposit, otherwise called the premium, can range from $5,000 to $1,000,000. Fixed annuities are very low risk, tax deferred with more liquidity than CDs, and typically offer higher yields than bonds, CDs, treasuries, or money market accounts.

A fixed annuity uses one of two distribution models: immediate or deferred. Immediate fixed annuities start issuing monthly payments right away, until the initial premium plus interest get paid out. Deferred annuities don't pay out until the end of their term, compounding interest like a typical retirement savings account.

Most fixed annuities also feature a lifetime income option—allowing you to convert accumulated savings into a guaranteed monthly income for the rest of your life. This feature is highly desirable to many retirees and sets annuities apart from other types of retirement investments.

2. What Is a Variable Annuity?

A variable annuity is a contract between you and an insurance company, under which the insurer agrees to make periodic payments to you, beginning either immediately or at some future date. You purchase a variable annuity contract by making either a single purchase payment or a series of purchase payments.

A variable annuity offers a range of investment options. The value of your investment as a variable annuity owner will vary depending on the performance of the investment options you choose. The investment options for a variable annuity are typically mutual funds that invest in stocks, bonds, money market instruments, or some combination of the three.

Although variable annuities are typically invested in mutual funds, variable annuities differ from mutual funds in several important ways:

First, variable annuities let you receive periodic payments for the rest of your life (or the life of your spouse or any other person you designate). This feature offers protection against the possibility that after you retire, you will outlive your assets.

Second, variable annuities have a death benefit. If you die before the insurer has started making payments to you, your beneficiary is guaranteed to receive a specified amount—typically at least the amount of your purchase payments. Your beneficiary will get a benefit from this feature if, at the time of your death, your account value is less than the guaranteed amount.

Third, variable annuities are tax deferred. That means you pay no taxes on the income and investment gains from your annuity until you withdraw your money. You may also transfer your money from one investment option to another within a variable annuity without paying tax at the time of the transfer. When you take your money out of a variable annuity, however, you will be taxed on the earnings at ordinary income tax rates rather than lower capital gains rates. In general, the benefits of tax deferral will outweigh the costs of a variable annuity only if you hold it as a long-term investment to meet retirement and other long-range goals.

Remember: Variable annuities are designed to be long-term investments, to meet retirement and other long-range goals. Variable annuities are not suitable for meeting short-term goals because substantial taxes and insurance company charges may apply if you withdraw your money early. Variable annuities also involve investment risks, just as mutual funds and stocks do.

The preceding discussions on types of investments are not, by any means, any recommendation, but only for educational purposes. You are advised to further research on these financial topics and or seek advice from your financial advisor before making an investment decision. Investing in equities and debt obligations involve risk to principal assets and may lose value.

Types of Life Insurance Policies

Life insurance is a type of insurance that pays a cash benefit to your family (or another person you name on your policy) when you die. Life insurance can help your family pay for living expenses or college tuition and other educational expenses. The insurance benefits can even help pay for your burial or outstanding debts. With certain types of life insurance policies, you can take advantage of the money you’ve paid into the insurance policy, even while you are still living.

There are two basic types of life insurance—term and permanent policies.

1. In general, Term Life Insurance policies only last for a specific amount of time known as a term. A term life insurance policy only pays a benefit to your survivors if you pass away while the policy is still in effect. But, once that term has ended, and you’re still alive, the policy ends, and all premiums during the effective period may not be refundable. You have the option of renewing some term policies when the term ends. But, your premium will increase when you renew because of your newly attained age. The longer the term of the policy, the higher are the premiums.

There are some types of term life insurance policies that will pay a premium benefit when the policy ends even if the policy doesn’t pay a death benefit. You’ll pay a higher monthly premium for these policies than those that end without paying a benefit.

Term life insurance provides the largest immediate death benefit for the minimum premium dollar. When compared to traditional whole life policies, term life insurance is substantially cheaper. Its reasonable rates allow for the purchase of much larger coverage than can be afforded from permanent life insurance. Term insurance covers you for a specified period of time, usually 5, 10, 20, or 30 year periods. As the name implies, term insurance is temporary, for a set period of time. Unlike universal or whole life insurance, Term life insurance is often referred to as pure insurance protection because it does not accumulate cash value.

When planning for your family’s financial future it's important to keep in mind that term life expires and it is possible to outlive your policy. If you're looking for permanent insurance that builds cash value, whole life or universal insurance policies may be the answer for you.

2. Permanent Life Insurance, unlike term life insurance, which ends after a certain period of time, it provides a lifelong benefit as long as you pay your insurance premiums. These policies are also known as cash value policies because you can build cash value in the insurance policy in addition to the death benefit.

Permanent life insurance policies have higher monthly premium because part of the premium pays cost of the death benefit, while the other part accumulates cash value. There are a few things you can do with the cash value; (1) you can borrow against the cash value without a credit check, (2) cancel the policy and receive all the cash (less any taxes or penalty—if any), (3) buy more coverage by using the cash value, (4) use the cash value to cover future premiums, or (5) exchange the policy for an annuity that will disburse fixed payments for a period of time.

If you take a loan against your insurance policy, you must pay interest on the loan. Since it's not technically considered a withdrawal in this case, loans can provide significant tax benefits. You must repay the loan before your death or the amount due will be subtracted from your death benefit. With most policies, your beneficiaries receive only your death benefit, not the cash value of the policy.

2. (A) Universal Life Insurance Policy

With a universal life insurance policy, you can typically pay your premiums at any time and in any amount, after you’ve made your first premium payment. Before you choose to reduce or stop making insurance premium payments, you should have enough cash value in your policy to cover the future premiums. Otherwise, the insurance company may cancel your policy. You also have the ability to increase or decrease the amount of your death benefit as your beneficiary’s dependence on your income changes.

Unlike whole life insurance, you don’t have to pay your insurance premiums on a universal life insurance policy up until you die. After a certain number of years, you may have accumulated enough cash value in your policy to cover the death benefit and the remainder of the premium payments.

Most insurance companies guarantee a minimum return on the cash value of your policy. The typical minimum return is 4%. No matter how the insurance’s investments gain or lose, you will always earn at least that amount.

With universal life insurance you have two options for death benefits. First, the death benefit may be paid from the cash value of the policy, or the policy might pay the contract value of the policy in addition to the cash value you’ve accumulated. The second option typically costs more in terms of total premiums.

2. (B) Whole Life Insurance Policy

Whole Life Insurance Policy Whole life insurance is a type of permanent life insurance that lasts until death or age 100 (120 in some cases) and combines a term life insurance with an investment. Whole life insurance has higher monthly premiums than comparable term life insurance policies because of the investment component as well as commissions and fees paid to the insurance agent. A portion of your monthly premiums goes toward the cost of insurance while the rest is placed into an investment. Your investment grows and accumulates into cash value that you can withdraw or borrow against. Note that cash value of the policy is different from the face value, which is the amount of insurance you purchased.

Since whole life is a permanent life insurance policy, you’ll continue to make payments on the premiums throughout your life. Unlike some term life insurance policies, your premium payments will be the same every month.

Securities offered through Newbridge Securities Corp. Member FINRA/SIPC

Tax/legal advice is not provided by Newbridge Securities Corporation. You should consult your own tax advisor/legal representative for more information. 5200 Town Center Circle, Tower One, Suite 306, Boca Raton, FL 33486, Tel No. 954 334-3450, Toll Free No. 877 447-9625, Fax No. 954 489-2390.

Fixed Annuities and Life insurance policies are not securities and as such are not offered through Newbridge Securities Corporation.

Guarantees and protections are subject to the claims-paying ability of the insurance company

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