Investment Products

Insurance contract providing periodic income payments, typically for retirement. Three main types: fixed annuities (guaranteed payments), variable annuities (payments fluctuate with market performance, regulated as securities), and indexed annuities (tied to market index with downside protection). Features accumulation phase (contributions grow tax-deferred) and annuitization phase (income distributions). Surrender charges apply for early withdrawals.

Example: A 55-year-old client invests $200,000 in a variable annuity. During the accumulation phase, funds gr...

A corporate bond that can be converted into a fixed number of shares of common stock at the bondholder's option. Features a lower coupon rate than non-convertible bonds (compensated by equity upside potential), a fixed conversion ratio set at issuance, and hybrid characteristics providing downside protection (bond floor) with upside participation (stock appreciation). Conversion makes sense when stock price exceeds parity price.

Example: A tech company issues a $1,000 convertible bond with a 3% coupon and conversion ratio of 20 shares. ...

Debt securities issued by corporations to raise capital, representing a loan from investors to the company. Corporate bonds carry higher credit risk than government bonds but typically offer higher yields to compensate. Bonds are rated investment-grade (BBB-/Baa3 or higher) or high-yield/junk (below investment-grade), with interest income taxable at ordinary income rates.

Example: A tech company issues 10-year corporate bonds with a 5% coupon rate. An investor purchases $10,000 f...

Government National Mortgage Association, a government-owned corporation within the U.S. Department of Housing and Urban Development (HUD) that guarantees mortgage-backed securities. GNMA pass-through certificates are backed by the full faith and credit of the U.S. government, making them the only mortgage security with direct government backing. Pass monthly payments of principal and interest to investors, subject to prepayment risk when homeowners refinance.

Example: An investor purchases a GNMA pass-through certificate backed by a pool of FHA-insured mortgages. Eac...

Debt securities issued by state and local governments to finance public projects, with interest typically exempt from federal income tax. Two main types: General Obligation (GO) bonds backed by taxing authority, and Revenue bonds backed by specific project revenue. Credit risk varies based on issuer financial strength and bond structure.

Example: A city issues a $50 million GO bond to build a new school, backed by property tax revenue. Separatel...

Derivative contracts giving the buyer the right, but not obligation, to buy (call) or sell (put) an underlying security at a specified strike price before expiration. The buyer pays a premium upfront for this right. Options provide leverage and speculation opportunities but involve substantial risk, including total loss of premium. Suitability requires understanding of options mechanics, high risk tolerance, and speculative investment objectives.

Example: An investor bullish on XYZ stock (trading at $50) buys a call option with a $55 strike price for a $...

A hybrid equity security that combines characteristics of both stocks and bonds. Pays fixed dividends (like bond interest) with priority over common stock dividends, receives priority in liquidation after bondholders but before common shareholders, and typically carries no voting rights. Often callable and less volatile than common stock.

Example: An income-focused retiree might invest in cumulative preferred stock paying a fixed 6% annual divide...

Real Estate Investment Trust. a company that owns, operates, or finances income-producing real estate. Must distribute at least 90% of taxable income as dividends to shareholders to maintain pass-through tax status. Two main types: equity REITs (own properties) and mortgage REITs (lend money for mortgages). REIT dividends are taxed as ordinary income.

Example: A client allocates 10% of their portfolio to a publicly-traded equity REIT that owns apartment build...

Debt obligations issued by the U.S. Department of the Treasury and backed by the full faith and credit of the U.S. government. Three types by maturity: Treasury bills (T-bills, up to 1 year), Treasury notes (T-notes, 2-10 years), and Treasury bonds (T-bonds, 10+ years, typically 20-30 years). Interest is subject to federal income tax but exempt from state and local taxes. Considered the risk-free benchmark for U.S. dollar-denominated investments.

Example: A conservative investor might hold a 6-month T-bill for short-term cash needs, a 5-year T-note for i...

A bond that makes no periodic interest payments (zero coupon) and is instead sold at a deep discount to its face value, with the full face value paid at maturity. The difference between the purchase price and maturity value represents the investor's return. Despite receiving no cash until maturity, investors must pay annual taxes on imputed interest (phantom income). Zero-coupon bonds have high interest rate sensitivity due to their long duration and are often used in tax-deferred accounts to avoid annual taxation.

Example: An investor purchases a 20-year zero-coupon Treasury bond with a $10,000 face value for $3,118 (repr...