Assurity Advisors, Inc.

Instruction

Cash investment

Introducting stocks

Money market funds

Stock mutual funds

Balanced funds

International funds

Cash Investments

Cash investments are short-term debt instruments that can easily be converted to cash. They are sometimes called short-term reserves or cash reserves. Examples include money market mutual funds, certificates of deposit (CDs) and Treasury bills (T-bills).

Money Market Fund - Pays interest at money market rates and invests in safe securities such as CDs or Treasury bills that are easily converted to cash. Money market funds are not insured by the U.S. government and therefore pose some risk of loss.

Certificate of Deposit - Pays interest on money held in a bank deposit. The money must be held for a specific period of time and is government-insured.

Treasury bill - Short-term (one year or less) discounted security issued by the U.S. government.

Benefits of cash investments:

Liquidity. Can quickly and easily be moved in and out of the stock market.
Security. Most cash investments involve safe and reliable institutions.

Drawbacks of cash investments:

Inflation. Most interest rates associated with cash investments are low. Over the long term, the return provided may barely stay ahead of the rate of inflation.
Income risk. Because the interest rates on these vehicles are "locked in," when the investment matures, you could receive a lower rate of return upon reinvestment.

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Introducing Stocks

Common stocks represent part ownership, or equity, in a company. A company issues stock as a way to raise money to expand or build its business.

By purchasing stock in a company, the investor is hoping the company will grow and its profits will increase. By doing so the price of the stock goes up and its value subsequently increases as well. The value of a particular stock is determined by such factors as the company's earnings, its long-term growth outlook and general economic conditions at the time. The purchase of common stock also allows the owner to vote on certain company operations.

Investors may also profit from stock ownership through dividends, or portions of a company's profits paid to stock owners.

The purchase of stock does include a certain amount of risk. If a company falls on hard times economically, the value of the stock could fall. The company might stop paying dividends and the market value of the stock could decrease.

Because stock prices tend to fluctuate suddenly and sometimes sharply, stocks are considered riskier than bonds or cash investments.

Over the long term, however, stocks have offered higher returns than bonds or cash investments. Keep in mind that past performance does not indicate future results.

Another type of stock offered by some companies is called "preferred stock." Preferred stock differs from common stock in that the amount of the dividend is guaranteed and is paid before dividends on common stock. Other differences include:

No voting rights.
Precedence over the claims of common stock shareholders should the company go out of business and liquidate.

The past decade has been uncommonly good for the majority of stockholders. However, when considering stock as an investment tool, it is wise to remember that the stock market is unpredictable. Just because your stocks are climbing one day does not mean they won't be falling the next.

Benefits of common stocks:

Long-term growth. Over long periods of time, stocks tend to offer larger returns than other investments. Since 1926, common stocks have returned an average of 11.2 percent annually.
Current income. Many stocks pay regular dividends, which you can receive as cash or reinvest in more shares.

Drawbacks of common stocks:

Market risk. The stock that was at one time growing so quickly could later begin to decline. And while a short market adjustment is no need to panic, the price of some stock may never rebound and may slide for extended periods. Stock markets tend to move in cycles, with periods when prices rise and other periods when prices fall.
Industry risk. The price of your stock could fall because of negative trends affecting a company's line of business.
Event risk. Stock prices may fall in response to events such as a merger, leveraged buyout, or other corporate restructuring.

Because of their short-term volatility, stocks should be considered a long-term investment.

One way to help gauge the safety (or volatility) of a stock is by using an industry term called "beta." Beta measures how much the share price of a security has fluctuated in the past in relation to fluctuations in the overall market.

Here's a quick beta overview:

The market is assigned a beta of 1.0.
A security with a beta of 1.0 is just as volatile as the market, meaning its price rises and falls in conjunction with its corresponding market index.
A stock assigned a beta greater than 1.0 is more volatile than the market, meaning it is more likely to increase or decrease by a larger percentage than its corresponding index. For example, if a security has a beta of 1.1 and the market index declines 10 percent, you could expect the security's price to decline 11 percent. Conversely, if the index rises 10 percent, you could expect the security to rise 11 percent.
A stock with a beta of less than 1.0 is less volatile than the market, meaning its values can be expected to rise or fall at a lower rate than its corresponding index.

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Money Market Funds

Money market funds are low-risk investments that offer low returns in exchange for providing peace of mind. They typically involve investing in high-quality short-term cash investments including certificates of deposit (CDs), Treasury bills, banker's acceptances, and commercial paper.

There are three basic types of money market funds:

U.S. Treasury funds. Invest primarily in U.S. Treasury obligations whose principal and interest payments are guaranteed by the U.S. government. Income from Treasuries typically is exempt from state and local income taxes.
U.S. government funds. Invest in high-quality obligations of the U.S. Treasury and other U.S. government agencies. Agency securities are not government-guaranteed.
General purpose funds. Short-term investments in large, high-quality corporations and banks.

Because cash investments are considered to be the safest of the three primary asset classes, these funds are ideal for stashing emergency money or cash that you plan to use in two years or less.

Taxable money market funds invest in debt obligations of the federal government or private corporations and pay dividends that are subject to federal, and possibly state and local, income taxes.

Tax-exempt (municipal) money market funds invest in debt obligations issued by state and local governments to meet short-term cash needs. These funds are attractive to investors in higher tax brackets because their interest income generally is exempt from federal tax.

Benefits of money market funds:

Stability of principal. Investments are viewed as safe. In addition, the Securities and Exchange Commission (SEC) requires that all taxable money market funds invest at least 95 percent of their assets in high-grade securities.
Current income. Monthly dividends are typically higher than the dividends paid by a savings account or CD.
Liquidity. You can redeem your money at any time. You may also transfer money to any strategy at any time with no fees.

In addition, tax-exempt money market funds are exempt from federal income tax and, if the fund buys only securities issued in your state of residence, from state and local taxes.

Drawbacks of money market funds:

Inflation. Most interest rates associated with cash investments are low. Over the long term, the return provided may barely stay ahead of the rate of inflation.
Income risk. Because the interest rates on these vehicles are "locked in," when the investment matures, you could receive a lower rate of return upon reinvestment.

In addition, tax-exempt money market funds generally provide less interest income than taxable funds of comparable quality.
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Stock Mutual Funds

Stock funds (also known as "equity" funds) vary based on whether they invest in companies which are primarily concerned with capital growth or consistent dividends, and on the market value of those companies.

There are three primary types of stock funds:

Growth funds. Invest in stocks of companies that have above-average growth potential.
Value funds. Invest in stocks of companies that are attractively priced; these companies frequently produce above-average dividend income.
Blend funds. Invest in a combination of both growth and value stocks.

Stock funds may also be categorized in term of market capitalization:

Small-cap. Invest in stocks of small companies (generally having a market value of $2 billion or less).
Mid-cap. Invest in stocks of medium-sized companies (generally having a market value of $2 billion to $10 billion).
Large-cap. Invest in stocks of large companies (generally having a market value of $10 billion or more).

Benefits of stock funds:

Long-term growth. Over the long haul, stocks have traditionally offered the greatest potential return on your investment.
Diversification. By investing in many different companies, the overall investment risk is greatly reduced.
Professional management. Experienced, professional fund management provides investors with the expertise to compare and select among the thousands of stocks available. A competent manager ensures that the investment objectives and goals remain on track.
Convenience. Most stock funds offer investors the opportunity to buy and sell shares, change distribution options and obtain information by telephone, mail, or online.

Drawbacks of stock funds:

Market risk. The stock that was at one time growing so quickly could later begin to decline. And while a short market adjustment is no need to panic, the price of some stock may never rebound and may slide for extended periods. Stock markets tend to move in cycles, with periods when prices rise and other periods when prices fall.
Investment style risk. If your fund's investment style is out of favor, its returns could trail the overall stock market or the returns of stock funds with different investment styles. For example, growth funds may do poorly when value funds do well, and vice versa.
Manager risk. In an actively managed fund, poor stock selection by the investment advisor could cause your fund to lag behind comparable funds.
Principal risk. You could lose money by investing in stock funds.

Growth Funds

Growth funds generally invest in companies with above-average prospects for long-term growth. The stocks generally do not produce dividend income, because most growth fund companies prefer to reinvest earnings in research and development.

Benefits of growth funds:

Long-term growth. The funds purchase stocks that are believed to have the potential for above-average capital growth.

Drawbacks of growth funds:

Market risk. The stock that was at one time growing so quickly could later begin to decline. And while a short market adjustment is no need to panic, the price of some stock may never rebound and may slide for extended periods. Stock markets tend to move in cycles, with periods when prices rise and other periods when prices fall.
Investment style risk. If your fund's investment style is out of favor, its returns could trail the overall stock market or the returns of stock funds with different investment styles. For example, growth funds may do poorly when value funds do well, and vice versa.
Manager risk. In an actively managed fund, poor stock selection by the investment advisor could cause your fund to lag behind comparable funds.

Value Funds

Value funds generally invest in stocks that are currently not preferred by other investors. This means these stocks are relatively low-priced in relation to their earnings or book value. These stocks typically produce above average dividend income.

Benefits of value funds:

Current income. These stocks generally provide a high level of dividend income.
Less volatility. Because of their more conservative investment style, these funds tend to fluctuate less in price than growth funds.

Drawbacks of value funds:

Market risk. The stock that was at one time growing so quickly could later begin to decline. And while a short market adjustment is no need to panic, the price of some stock may never rebound and may slide for extended periods. Stock markets tend to move in cycles, with periods when prices rise and other periods when prices fall.
Investment style risk. If your fund's investment style is out of favor, its returns could trail the overall stock market or the returns of stock funds with different investment styles. For example, growth funds may do poorly when value funds do well, and vice versa.
Manager risk. In an actively managed fund, poor stock selection by the investment advisor could cause your fund to lag behind comparable funds.

Blend Funds

Blend funds invest in both growth and value stocks. The funds may be attractive to investors seeking solid (if not spectacular) growth potential, moderate price value and some dividend income.

Benefits of blend funds:

Long-term growth. These funds purchase stocks that have the potential for high capital growth.
Current income. These funds purchase stocks that produce above-average dividend income.

Drawbacks of blend funds:

Market risk. The stock that was at one time growing so quickly could later begin to decline. And while a short market adjustment is no need to panic, the price of some stock may never rebound and may slide for extended periods. Stock markets tend to move in cycles, with periods when prices rise and other periods when prices fall.
Investment style risk. If your fund's investment style is out of favor, its returns could trail the overall stock market or the returns of stock funds with different investment styles. For example, growth funds may do poorly when value funds do well, and vice versa.
Manager risk. In an actively managed fund, poor stock selection by the investment advisor could cause your fund to lag behind comparable funds.

As previously discussed, in addition to blend, value and growth funds, money market funds are also categorized by the size, or market capitalization, of the companies they invest in.

These categories include: Small-cap funds, (less than $2 billion), mid-cap funds ($2 billion to $10 billion) and large-cap funds (more than $10 billion).

Note that category definitions may vary among fund companies, rating agencies, and other industry-related organizations.
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Balanced Funds

Balanced funds invest in a mix of stocks, bonds and cash investments. These funds provide a convenient way to achieve asset allocation with a single investment.

There are two basic types:

Traditional balanced funds invest in a mix of assets (such as common stocks and corporate bonds) or maintain asset allocations that fall within certain levels. Fund managers periodically readjust their portfolios to maintain the desired mix.
Asset allocation funds base their mix of assets on market conditions, looking for maximum returns when the market is strong and minimizing risk when the market is down.

Although balanced funds vary, traditionally the mix is 60 percent stocks and 40 percent bonds.

Balanced funds offer the benefits of diversification in a single investment—with the accompanying risks of each asset class the funds hold.

Benefits of balanced funds:

Diversification. The fund enables you to create a diversified portfolio through a single investment.
Less volatility. The price of a balanced fund is likely to fluctuate less than stocks alone because of the mix of stocks and bonds.

Drawbacks of balanced funds:

Market risk. The stock that was at one time growing so quickly could later begin to decline. And while a short market adjustment is no need to panic, the price of some stock may never rebound and may slide for extended periods. Stock markets tend to move in cycles, with periods when prices rise and other periods when prices fall.
Investment style risk. If your fund's investment style is out of favor, its returns could trail the overall stock market or the returns of stock funds with different investment styles. For example, growth funds may do poorly when value funds do well, and vice versa.
Manager risk. In an actively managed fund, poor stock selection by the investment advisor could cause your fund to lag behind comparable funds.

In addition, asset allocation funds are prone to frequent shifts in asset mix and possibly a high turnover rate. This in turn could lead to higher transaction costs, reducing the fund's total returns. High turnover also tends to lead to increased taxable capital gains.
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International Funds

International stock funds have become popular recently as investors search for additional ways to diversify their portfolios. Today, foreign markets represent nearly half the world's capitalization.

While some international funds invest in the companies of specific countries, other funds focus on the companies they consider most promising, regardless of where those companies are based.

The major types of international stock funds are:

International funds. Invest in the stocks of established foreign markets. These funds are broadly diversified and are the most widely held type of international stock fund.
Global funds. Invest in both U.S. and foreign stocks.
Regional funds. Invest in the stocks of a geographic region, such as Europe, South America or Asia . These funds are generally subject to a great deal of fluctuation.
Single-country funds. Invest in the stocks of a single foreign country.
Emerging markets funds. Invest in the financial markets of countries that are undergoing widespread economic development or moving from a state-controlled system to a free-market economy. These markets offer the potential for high returns but also feature significant risk.

Benefits of international stock funds:

Increased opportunity. There are thousands of investment opportunities around the world that you would miss out on if you invested solely in U.S. stocks.
Overall risk reduction. The U.S. market and foreign markets generally follow different economic cycles. When U.S. stock prices rise or fall, foreign stock prices may shift by different amounts or even move in the opposite direction.
Competitive returns. Many developing countries offer the potential for faster economic growth—and higher total returns—than the established U.S. market.

Drawbacks of international stock funds:

In addition to the risks of other stock funds, international stock funds have the following specific drawbacks:

Market risk. The stock that was at one time growing so quickly could later begin to decline. And while a short market adjustment is no need to panic, the price of some stock may never rebound and may slide for extended periods. Stock markets tend to move in cycles, with periods when prices rise and other periods when prices fall.
Currency risk. Currency prices are volatile and change frequently.
Country risk. Political events (war, national elections), financial problems (rising inflation, government default) or natural disasters (an earthquake, a poor harvest) could weaken a country's economy and cause your investments in that country to decline.
Higher costs. Because the funds trade in foreign markets, they typically incur higher operating expenses, transaction costs and sales charges (loads), all of which reduce your total return.

Because of the risks involved, you should invest internationally only after you have built a well-diversified portfolio of funds that invest primarily in U.S. stocks and bonds.
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Instruction

Cash Investments

Cash investments are short-term debt instruments that can easily be converted to cash. They are sometimes called short-term reserves or cash reserves. Examples include money market mutual funds, certificates of deposit (CDs) and Treasury bills (T-bills).

Money Market Fund - Pays interest at money market rates and invests in safe securities such as CDs or Treasury bills that are easily converted to cash. Money market funds are not insured by the U.S. government and therefore pose some risk of loss.

Certificate of Deposit - Pays interest on money held in a bank deposit. The money must be held for a specific period of time and is government-insured.

Treasury bill - Short-term (one year or less) discounted security issued by the U.S. government.

Benefits of cash investments:

Liquidity. Can quickly and easily be moved in and out of the stock market.

Security. Most cash investments involve safe and reliable institutions.

Drawbacks of cash investments:

Inflation. Most interest rates associated with cash investments are low. Over the long term, the return provided may barely stay ahead of the rate of inflation.

Income risk. Because the interest rates on these vehicles are "locked in," when the investment matures, you could receive a lower rate of return upon reinvestment.

Introducing Stocks

Common stocks represent part ownership, or equity, in a company. A company issues stock as a way to raise money to expand or build its business.

Investors may also profit from stock ownership through dividends, or portions of a company's profits paid to stock owners.

The purchase of stock does include a certain amount of risk. If a company falls on hard times economically, the value of the stock could fall. The company might stop paying dividends and the market value of the stock could decrease.

Because stock prices tend to fluctuate suddenly and sometimes sharply, stocks are considered riskier than bonds or cash investments.

Over the long term, however, stocks have offered higher returns than bonds or cash investments. Keep in mind that past performance does not indicate future results.

Another type of stock offered by some companies is called "preferred stock." Preferred stock differs from common stock in that the amount of the dividend is guaranteed and is paid before dividends on common stock. Other differences include:

No voting rights.

Precedence over the claims of common stock shareholders should the company go out of business and liquidate.

The past decade has been uncommonly good for the majority of stockholders. However, when considering stock as an investment tool, it is wise to remember that the stock market is unpredictable. Just because your stocks are climbing one day does not mean they won't be falling the next.

Benefits of common stocks:

Long-term growth. Over long periods of time, stocks tend to offer larger returns than other investments. Since 1926, common stocks have returned an average of 11.2 percent annually.

Current income. Many stocks pay regular dividends, which you can receive as cash or reinvest in more shares.

Drawbacks of common stocks:

Industry risk. The price of your stock could fall because of negative trends affecting a company's line of business.

Event risk. Stock prices may fall in response to events such as a merger, leveraged buyout, or other corporate restructuring.

Because of their short-term volatility, stocks should be considered a long-term investment.

One way to help gauge the safety (or volatility) of a stock is by using an industry term called "beta." Beta measures how much the share price of a security has fluctuated in the past in relation to fluctuations in the overall market.

Here's a quick beta overview:

The market is assigned a beta of 1.0.

A security with a beta of 1.0 is just as volatile as the market, meaning its price rises and falls in conjunction with its corresponding market index.

A stock with a beta of less than 1.0 is less volatile than the market, meaning its values can be expected to rise or fall at a lower rate than its corresponding index.

Money Market Funds

Money market funds are low-risk investments that offer low returns in exchange for providing peace of mind. They typically involve investing in high-quality short-term cash investments including certificates of deposit (CDs), Treasury bills, banker's acceptances, and commercial paper.

There are three basic types of money market funds:

U.S. Treasury funds. Invest primarily in U.S. Treasury obligations whose principal and interest payments are guaranteed by the U.S. government. Income from Treasuries typically is exempt from state and local income taxes.

U.S. government funds. Invest in high-quality obligations of the U.S. Treasury and other U.S. government agencies. Agency securities are not government-guaranteed.

General purpose funds. Short-term investments in large, high-quality corporations and banks.

Because cash investments are considered to be the safest of the three primary asset classes, these funds are ideal for stashing emergency money or cash that you plan to use in two years or less.

Taxable money market funds invest in debt obligations of the federal government or private corporations and pay dividends that are subject to federal, and possibly state and local, income taxes.

Tax-exempt (municipal) money market funds invest in debt obligations issued by state and local governments to meet short-term cash needs. These funds are attractive to investors in higher tax brackets because their interest income generally is exempt from federal tax.

Benefits of money market funds:

Stability of principal. Investments are viewed as safe. In addition, the Securities and Exchange Commission (SEC) requires that all taxable money market funds invest at least 95 percent of their assets in high-grade securities.

Current income. Monthly dividends are typically higher than the dividends paid by a savings account or CD.

Liquidity. You can redeem your money at any time. You may also transfer money to any strategy at any time with no fees.

In addition, tax-exempt money market funds are exempt from federal income tax and, if the fund buys only securities issued in your state of residence, from state and local taxes.

Drawbacks of money market funds:

Inflation. Most interest rates associated with cash investments are low. Over the long term, the return provided may barely stay ahead of the rate of inflation.

Income risk. Because the interest rates on these vehicles are "locked in," when the investment matures, you could receive a lower rate of return upon reinvestment.

In addition, tax-exempt money market funds generally provide less interest income than taxable funds of comparable quality. back to top

Stock Mutual Funds

Stock funds (also known as "equity" funds) vary based on whether they invest in companies which are primarily concerned with capital growth or consistent dividends, and on the market value of those companies.

There are three primary types of stock funds:

Growth funds. Invest in stocks of companies that have above-average growth potential.

Value funds. Invest in stocks of companies that are attractively priced; these companies frequently produce above-average dividend income.

Blend funds. Invest in a combination of both growth and value stocks.

Stock funds may also be categorized in term of market capitalization:

Small-cap. Invest in stocks of small companies (generally having a market value of $2 billion or less).

Mid-cap. Invest in stocks of medium-sized companies (generally having a market value of $2 billion to $10 billion).

Large-cap. Invest in stocks of large companies (generally having a market value of $10 billion or more).

Benefits of stock funds:

Long-term growth. Over the long haul, stocks have traditionally offered the greatest potential return on your investment.

Diversification. By investing in many different companies, the overall investment risk is greatly reduced.

Professional management. Experienced, professional fund management provides investors with the expertise to compare and select among the thousands of stocks available. A competent manager ensures that the investment objectives and goals remain on track.

Convenience. Most stock funds offer investors the opportunity to buy and sell shares, change distribution options and obtain information by telephone, mail, or online.

Drawbacks of stock funds:

Investment style risk. If your fund's investment style is out of favor, its returns could trail the overall stock market or the returns of stock funds with different investment styles. For example, growth funds may do poorly when value funds do well, and vice versa.

Manager risk. In an actively managed fund, poor stock selection by the investment advisor could cause your fund to lag behind comparable funds.

Principal risk. You could lose money by investing in stock funds.

Growth Funds

Growth funds generally invest in companies with above-average prospects for long-term growth. The stocks generally do not produce dividend income, because most growth fund companies prefer to reinvest earnings in research and development.

Benefits of growth funds:

Long-term growth. The funds purchase stocks that are believed to have the potential for above-average capital growth.

Drawbacks of growth funds:

Investment style risk. If your fund's investment style is out of favor, its returns could trail the overall stock market or the returns of stock funds with different investment styles. For example, growth funds may do poorly when value funds do well, and vice versa.

Manager risk. In an actively managed fund, poor stock selection by the investment advisor could cause your fund to lag behind comparable funds.

Value Funds

Value funds generally invest in stocks that are currently not preferred by other investors. This means these stocks are relatively low-priced in relation to their earnings or book value. These stocks typically produce above average dividend income.

In addition, tax-exempt money market funds generally provide less interest income than taxable funds of comparable quality.
back to top

Note that category definitions may vary among fund companies, rating agencies, and other industry-related organizations.
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In addition, asset allocation funds are prone to frequent shifts in asset mix and possibly a high turnover rate. This in turn could lead to higher transaction costs, reducing the fund's total returns. High turnover also tends to lead to increased taxable capital gains.
back to top

Because of the risks involved, you should invest internationally only after you have built a well-diversified portfolio of funds that invest primarily in U.S. stocks and bonds.
back to top