Investment Options

Investment

Benefits

Limitations

Certificates of Deposit

Sold by:

• • banks
• • thrifts
• • credit unions
• • some brokers 

• • fixed rate of return
• • Federally insured in most cases
• • minimal- or no- fees

• • does not hedge against inflation
• • rate of return is likely to be lower, since less risk is involved
• • penalties for early withdrawal

Mutual Funds

Sold by: 

• • mutual fund sponsors
• • brokers
• • some banks

• • liquidity
• • ability to participate in a diversified and professionally managed portfolio of stocks, bonds, and money market instruments
• • potential to out perform fixed rate of return investments

• • performance subject to market fluctuations
• • less secure than fixed rate investments
• • loss of principal possible 

Variable Annuities

Sold by:

• • insurance companies
• • brokers
• • some banks

• • ability to participate  in a diversified and professionally managed portfolio of stocks, bonds, and money market instruments
• • potential to out perform fixed rate of return investments   

• • performance subject to market fluctuations
• • penalties for early withdrawals
• • loss of principal possible
• • interest income is sheltered even without an IRA

Fixed Annuities

Sold by:

• • insurance companies
• • brokers
• • some banks

• • fixed rate of return
• • guaranteed income for life

• • rate of return is likely to be lower, since less risk is involved
• • does not hedge against inflation
• • penalties for early withdrawals
• • interest income is sheltered even without an IRA 

Zero-Coupon Bonds

Sold by:

• • brokers
• • some banks

• • fixed rate of return
• • wide range of maturities
• • low initial cost
• • no need to reinvest interest income

• • does not hedge against inflation
• • price fluctuates broadly with swings in interest rates

Common Stocks/Bonds

Sold by:

• • brokers
• • some banks

• • flexibility in structuring portfolio
• • liquidity
• • potential to out perform fixed rate of return investments   

• • limited diversification
• • performance fluctuates according to investment selection and market conditions
• • brokerage commissions must be paid using tax-deferred funds