SECTION IV: INVESTMENTS

Selecting from Various Types of Individual Bonds

There are many different types of bonds available to investors. Typically, investors who purchase lower grade bonds assume more credit risk than buyers of high-grade bonds, but do so in anticipation of receiving higher yields. Some of the most common classifications of bonds include the following:

CORPORATE BONDS

Corporations sell bonds to raise money. While corporate bonds do not provide investors with income tax advantages, they do usually offer higher yields. Corporate bonds pay interest based on credit risk with more risk equaling higher interest rates.

U.S. GOVERNMENT BONDS

The United States Treasury sells bonds to finance the federal government. U.S. Government bonds are considered to be some of the safest bonds for investors to purchase as they are backed by the full faith and credit of the federal government.

MUNICIPAL BONDS

State and local governments and government-related agencies, such as schools and highway authorities, sell bonds to raise money for a variety of purposes. There are different types of municipal bonds, including general obligation, debenture and revenue. The type of municipal bond offered will depend on the reason for selling the bonds. Municipal bonds are typically considered to be safe investments and may even be insured.

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