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Types of Investments

There are three basic types of investment securities. Bonds, mutual funds, and stocks.

Bonds-a written promise of payment by a corporation or government at the end of a specific time period. Bondholders receive interest on the amount they have loaned. Capital gains and losses can also occur. (Michigan Council on Economic Education, Glossary terms by benchmark) Generally bonds are of medium risk, although some are rated as “junk” or below investment grade.

Mutual Funds-A mutual fund is a group of individual investors pooling their money together to buy different types of investment securities. Mutual funds are administered by a mutual fund manager. (Moneyinstructor, Understanding mutual funds) A mutual fund can be all stocks, all bonds, or also may contain other investment securities.

Stocks-a share of ownership in a corporation. Successful companies reward investors with dividends and earnings per share. (Michigan Council on Economic Education, Glossary terms by benchmark)   Generally stocks carry the most risk. Although there are also risks within the different categories of stocks, depending on the company’s size.

Open each company's investor websites below. Click on the symbols inside the parenthesis.   A stock's market capitalization is calculated by taking the current price per share and multiplying it by the number of shares outstanding.

Large Cap Stocks. Ford Motor Company (F) is an example of a large cap stock. Large cap stocks are generally the safest within the stock segment. Large cap stocks have market capitalizations greater than $5 Billion (USD) market capitalization. (Large, Medium, and Small Cap Stocks)

Mid Cap Stocks. Detroit Edison (DTE) is an example of a mid-cap stock. Mid cap stocks generally have medium risk within the stock segment. Mid cap stocks range between $1 billion and $5 Billion (USD) market capitalization. (Large, Medium, and Small Cap Stocks)

Small Cap Stocks. Aastrom Biosciences (ASTM) is an example of a small-cap stock. Small cap stocks generally carry the most risk within the stock segment. Small cap stocks have market capitalizations under $1 billion (USD) market capitalization. (Large, Medium, and Small Cap Stocks)

Some companies allow individual investors to invest directly in their company. These plans are called dividend reinvestment plans (DRIPS). DRIPS are attractive to small individual investors because they generally have a low minimum amount to start (as low as $50) and most do not charge any fees to invest.

Print out the Investment Securities Task, use the internet to help you answer the questions. Turn it in for credit. You are on your way to understanding and investing your own financial securities.