Managing the Investments

Types of Investments

  • Stocks: These represent ownership in a company and offer potential for growth through price appreciation and dividends. They’re ideal for long-term wealth building but come with higher risk due to market volatility. A wealth advisor might recommend stocks to diversify your portfolio and pursue capital gains.
  • Bonds: These are loans you make to a government or corporation, repaid with interest over time. They provide steady income and stability, balancing riskier assets like stocks. Advisors often use bonds to preserve capital or generate predictable cash flow, especially as you near retirement.
  • Mutual Funds: These pool money from many investors to buy a diversified portfolio of stocks, bonds, or other assets, managed by professionals. They offer diversification without requiring you to pick individual securities, making them a convenient option for broad market exposure.
  • ETFs (Exchange-Traded Funds): Similar to mutual funds, ETFs hold a basket of assets but trade like stocks on an exchange. They typically have lower fees and provide flexibility, as you can buy or sell throughout the day. Advisors might use ETFs for cost-efficient diversification or to target specific sectors.
  • Structured Notes: A structured note is a hybrid financial instrument issued by banks or financial institutions that combines a bond with a derivative component, typically tied to the performance of an underlying asset like a stock index, commodity, or currency. It’s designed to offer a tailored payout based on specific conditions, blending the safety of a fixed-income product with the potential for higher returns—or losses—linked to market performance.

Here’s the breakdown: The “bond” part usually promises to return your initial investment (principal) at maturity, often with some level of protection (full or partial, depending on the note). The “derivative” part determines the extra return, if any, based on how the linked asset performs. For example, a structured note might track the S&P 500—if the index rises by a certain percentage, you get a boosted payout; if it tanks, you might just get your principal back or, in riskier versions, lose some of it.

There are 3 types to choose from:

    1. Principal-protected notes: Guarantee your initial investment back (assuming the issuer doesn’t default), with upside tied to the asset’s gains.
    2. Non-principal-protected notes: Riskier, where you could lose part or all of your money if the asset underperforms, but the potential rewards are higher.
    3. Income notes: Focus on regular payments rather than a big payout at the end, often appealing to those seeking cash flow.

The catch? They’re complex, less liquid (you’re usually locked in until maturity), and carry credit risk—if the issuer (say, a bank) goes bust, you’re out of luck. Fees can also eat into returns, and the payoff structure might cap your gains or limit upside compared to investing directly in the asset.

  • Money Markets: A money market account (MMA) is a type of savings account offered by banks and credit unions that typically pays higher interest rates than a regular savings account while keeping your money relatively accessible. It’s a low-risk option designed to earn a bit more than standard savings, but it’s not the same as a money market fund (which is an investment product).

Here’s how it works: You deposit money into the account, and it earns interest based on short-term, safe investments the bank makes—like Treasury bills, certificates of deposit, or other low-risk securities. MMAs often require a higher minimum balance (sometimes $500 to $2,500 or more) compared to regular savings accounts, and in exchange, you get a better yield. They’re FDIC-insured (up to $250,000 per depositor, per bank), so your money’s protected if the bank fails.

Key features:

  • Limited access: You can usually write checks or use a debit card, but federal rules (Regulation D) traditionally cap you at six withdrawals or transfers per month. Some banks loosened this during the pandemic, but restrictions can still apply.
  • Interest rates: Higher than regular savings but variable—tied to market conditions—so they can fluctuate.
  • Safety: Not a big moneymaker, but your principal is secure, making it a middle ground between a checking account and riskier investments.

They’re great for emergency funds or short-term savings where you want some growth without locking your cash up (like in a CD) or risking it in the stock market.