The United States Senate Finance Committee (presently referred to as the United States Senate Committee on Finance) deals with matters relating to taxation and other revenue measures, such as the bonded debt of the United States; general revenue sharing; public money deposits; customs, ports of entry and delivery; customs; along with health programs listed under the Social Security Act and/or financed by a trust fund or specialized tax.

Additionally, the United States Senate Finance Committee evaluates matters involving national security, including all reciprocal trade agreements, tariffs, import quotas and all related matters to the transportation of dutiable goods. As a result of these responsibilities and multiple duties, the United States Senate Finance Committee is often regarded as one of the most powerful and influential committees in Congress.

Judging by the sheer number of subjects and relationships that the United States Senate Finance Committee regulates, the various roles of the Committee are paramount in regards to the overall health and stability of the country’s economy.

The role of the United States Senate Finance Committee can be compared to the House Committee on Ways and Means. That being said, the primary difference between the two committees revolves around the jurisdictional powers of the two bodies, particularly the fact that the United States Senate Finance Committee possesses an authoritative role over both Medicaid and Medicare, while the House Ways and Means Committee only possesses jurisdictional powers over Medicare—The House Energy and Commerce Committee possesses jurisdictional power over Medicaid.

The other difference between the United States Senate Finance Committee and the House Committee on Ways and means revolves around financing power; all revenue raising measures must reside in the House, which gives the Ways and Means Committee a slight advantage in regards to establishing a tax policy. As a result of this jurisdiction over legislation, the House and Means Committee possesses an extensive oversight power to investigate, review and evaluate existing laws, as well as containing the agencies to implement such laws.

Currencies that maintain higher exchange within the setting of present day may allow for an individual acquiring that currency – in exchange of another currency – to receive a larger amount of a currency with a higher exchange rate. Conversely, currencies with Current Exchange Rates lower in values – or in decline – may allow for a subtracted amount of that currency received upon exchange:

Upon the analysis of Current Exchange Rates with regard to specific currency systems in circulation.

Individuals will be able to gauge their commercial and financial activity in tandem with FOREX charts; FOREX Charts – which stand for ‘Foreign Exchange Charts’ – are a common moniker for documentation or resources illustrating Current Exchange Rates.

Why Are Current Exchange Rates Important?

Financial activity undertaken as a result of the analysis of Current Exchange Rates can manifest in a variety of forms. Currency exchange trading may be structured as per the result of varying ideologies involving any or all events occurring – in present day – within the boundaries of individual countries or nations. As a result, Current Exchange Rates are often considered to be corollary to events and circumstances financial, commercial, and economic in nature:

The fluctuation of any or all of these events will typically dictate the valuation process expressed within Current Exchange Rates; in addition, these figures may also illustrate an anticipated exchange rate, the market behavior, or estimations concerning applicable trends.

Current Exchange Rates corollary to the variety of currency systems currently in circulation provides individuals with information and resources pertinent tothe valuation process and behavior with regard to both individual currency systems, as well as trends existing in conjunction to the value of other currency systems.

Current Exchange Rates may provide for the explication of certain foreign currencies known for their respective – and identifiable – value fluctuation in tandem with coinciding currencies; yet, the Current Exchange Rates belonging to other currency systems maynot experience fluctuation contingent on peripheral currency exchange rates.

What Can Be Learned from Current Exchange Rates?
Currency exchange rates are considered to be primarily reliant on the stasis of the economy belonging to a particular country or nation; Current Exchange Rates corresponding to individual countries or nations may provide for an advanced understanding of economic events taking place within that country or nation:

For example, countries – or nations – undergoing financial and economic prosperity may experience increased valuation with regard to their currency; this may be illustrated by their respective Current Exchange Rates.

In contrast, countries or nations undergoing economic or financial instability may experience a severe decline with regard to the value of their currency – or monetary system; this can also be reflecting within their respective Current Exchange Rates.

The term ‘personal finance’ refers to an application of the basic principles of finance and how those principals should be applied to the monetary decisions of an individual consumer or investor.

Personal finance addresses the particular ways in which individuals (or families) should efficiently apply a budget to their everyday lives. Within this practice, the individual should develop a plan to effectively save their money and spend their resources overtime, in a frugal and intelligent fashion. Personal finance takes into account the various financial risks and future events that are common in life; however, the practice places an emphasis on the importance of shrewdly investing and saving.

The various components of personal finance will include the following categories: checking and savings accounts, investments in stocks, bonds, or other financial instruments, credit cards and consumer loans, retirement plans, social security benefits, income tax management, insurance policies, and the management of an individual’s retirement plan.

Personal finance lumps these categories into one broad classification to deliver an organized and well-structured budget and investment plan to the individual consumer. The goal of the study is to elucidate upon an individual’s ability to effectively manage their finances over the long-term; personal finance does not place an importance on short-term gains or the risk involved in maximizing an individual’s capital over a short period of time.

The key component of personal finance revolves around financial planning. This process requires the delivery of regular evaluations and monitoring of an individual’s finances and their respective long-term plans, goals, and means to obtain their goals. In a general sense, financial planning adheres to give general steps or rules:

Assessment: This step states that an individual’s personal finances can be assessed through the compilation of balance sheets, income statements and tax returns. The personal balance sheet will list the values of the individual’s assets, including their bank accounts, stocks, cars, houses, and other assets.

Additionally, the personal balance sheet will also list the individual’s debts or personal liabilities, including their bank loans, mortgage payments and credit card debts. The personal income statement will provide an individual with a comprehensive list of income figures as well as monthly expenses.

Establishing Goals: This portion of financial planning concerns retirement, purchasing a home, and other financial goals that are common among individual consumers or investors. The ability to retire with a healthy retirement account and the ability to meet mortgage payments without foreclosing are the primary goals of personal finance.

Establishing a Plan: The field of personal finance encourages all individual consumers and investors to establish a long-term financial plan. The financial plan is meant to reduce expenses, increase income, and establish an efficient and diversified investment strategy.

Executing the Plan: To achieve financial goals the investor or consumer must initiate their plan. Typically such plans require discipline and a frugal mindset; to aid an individual in establishing a plan, professional planners can be hired to manage retirement accounts or investment portfolios.

Monitoring the Plan: Once the plan has been developed and initiated, it must be reassessed and perpetually monitored to assure that the plan is efficient and effectively maximizes an individual’s income.

Budgeting is the term used for keeping track of your financial status and using a number of resources to ensure that your are making sound financial decisions that will keep you from losing money, falling into bankruptcy and improving your net worth.

Budgeting can be difficult and in many regards require a great amount of discipline.  All individuals who you would consider “rich” did so; not because they have high paying jobs, although that helps, but because they managed their budgets and income.  Instead of spending their paychecks on short term, and material, benefits these individuals budgeted their income and invested their funds in assets that, over time, increased their wealth.

Budgeting does not make you wealthy over night and often it can take years, or decades, to realize that you careful financial planning has made you extremely well off.

The first step in making a sound budget to help your financial situation is to take make a financial plan.  A financial plan is includes assessing your assets, liabilities, income and expenses.  

When making a financial plan you will first want to accumulate all data concerning your assets.  This includes bank accounts; real estate; all investments including stocks, bonds and mutual funds.  When assessing your assets for the purpose of creating a financial plan there are a number of schools of though as to what should be included.  Most analysts will tell you that your financial plan should include only those assets that you may liquidate at will, or on short notice.  This includes cash in bank accounts, stocks, and mutual funds.  Long term bonds that will only mature after a long period of time should not be considered in assessing your assets, neither should dividends from stocks.  Because of the fluctuation in the stock market, when you are assessing the value of your stocks you should be cautious as to the value that you put on it.  Your stock may be worth $10,000 today but market fluctuation may cause your stock to decrease in value to $5,000 very shortly and will render your financial plan inaccurate.  When you compile all your assets you should divide them into those that are immediately available for liquidation at a known, fixed amount; and those that are long term investments that will be incapable of liquidation.  Those that are not easily liquidated, or unable to liquidate, should be put to the side and forgotten about for the purposes of creating you budget and financial plan.

The second step in creating your budget, and financial plan, is to assess your liabilities.  This includes credit card debt; mortgages; rent; expenses, both fixed and variable, taxes, and any other expected payments that you incur on a regular basis.  When you are assessing your liabilities you should lump them into two categories.  Those that are fixed liabilities and those that are variable.  Fixed expenses are those that you know will maintain a constant, known, periodic expense.  This includes your monthly rent, your mortgage, car payments and maybe your monthly tuition charge.  These liabilities are fixed and you will know when and how much they will cost you.  They are the simplest form of assessing your budget.  

The variable liabilities are those that fluctuate from period to period.  They are more difficult to assess in budgeting than when you are using fixed, known liabilities.  Variable liabilities can include groceries; automotive repair; and utilities, especially when discussing the changing of the seasons.  These variable liabilities, as well as interest bearing credit cards, are the forms of liabilities that are most readily able to be lowered and managed in increasing your net worth whereas fixed liabilities are constant and there isn’t really much that an individual can do to lower the amount that they must assess.

Once you have compiled a list of all your assets and liabilities they should be divided into increments based on your income.  If you get paid on a monthly basis then those assets and liabilities should be divided on a monthly basis.  This will allow you to calculate how much of your monthly worth; income from your job + interest bearing assets, are readily available to pay your expenses on a monthly basis.  Once you assess your liabilities for the month, both fixed and projected variable liabilities, subtract them from your income.  This will give you your net monthly income.  

An important caveat to remember when planning your budget is to discount any expected return from your income taxes.  If you are expected to have to pay the federal government when you file your income taxes that is definitely something that you should assess in your budgeting and plan for the worst in having to pay the local, state, and federal government.  In contrast, when you are expected to get a tax rebate at then end of the fiscal year from the government this should not be included in managing your budget and should not be considered part of your yearly income.  The best way to look at a tax return is not to.  Forget it is a possibility.  When you receive your tax rebate from the federal government it should be looked at in the same way you would look at an unexpected gift from your aunt.  Tax rebates should be looked at as found money.

When you finally assess how much money you have coming in on a monthly basis it is time to assess your variable debt.  The easiest variable debts to pay off are your credit cards.  A sound budgeting plan will, no doubt, include paying off high interest bearing liabilities, especially credit cards.  Credit card interest rates are some of, if not the highest interest rates you will pay and when you have a high balance on your card you are basically wasting money every month to avoid defaulting.  If you have credit card debt and you are “in the black” at the end of the month after paying your expenses and assessing your costs for essentials such as groceries, utilities, and other necessities, your goal should be to take a certain percentage of that and pay off your credit card debt.  It may take a period of time to get your balance down to zero but every month that you decrease your credit card debt you will have a lower monthly payment and therefore less expenses when you assess your monthly income.  By paying off your credit card debt every month you should be finding yourself more and more in the black.  As this happens you should be devoting more and more to the repayment of your credit card debt until it has a zero balance.  

If you have numerous types of interest bearing debt you will want to sit down and assess the way that you should be managing that debt.  All types of debt have different interest rates.  Some, like credit cards, have high interest rates, whereas others, like student loans and mortgages have relatively low interest that is going to be stable over a long period of time.  When you have these types of expenses it is important to attempt to pay off the high interest debt as soon as possible while, at the same time, meeting your obligations on your other forms of debt.  If you have a debt that requires you to pay 10% interest per year you will want to try and eliminate that debt completely before you attempt to completely pay off a debt that is at 4% a year. 

However, this is not cut and dry and you will want to think about investing as opposed to paying off the debt completely.  Often times you will find investment opportunities that have an annual return on investment of greater than the interest rate on your debt.  In these situations it is often a better budgeting plan to invest in the higher interest investment and make your scheduled monthly payments on your low interest debt.  For example, if you owe $10,000 on a debt that accumulates interest on a monthly basis of 4% a year you will be paying interest of $33 ($10,000  x  .04 / 12).  If you were to take $10,000 of your money and invest it in an fixed interest bond that has a 5% yearly return then your monthly income from that investment would be $41.50 ($10,000 x .05 / 12).  In this regard you would realize a greater benefit, $8.50 a month, from investing the $10,000 than in paying of the debt.  

Once you have assessed your financial situation and have eliminated, or begun to eliminate, your variable, and unnecessary debt it is time to plan for future wealth and prosperity.  

Making your budget and financial plan is often the easiest part.  Where it gets difficult is in the management and discipline in maintaining your budget.  Once you have assessed your assets, liabilities and you have come to a conclusion on how much money you have left over for investing, incidentals, necessities, etc. you need to stick to that budget.  

With the amount of money that you have left you should set a plan.  You should have a percentage of that money set aside for investing, another percentage set a side for entertainment, another set aside for groceries and other necessities, and yet another set aside for unexpected costs such as automotive repair.  You should not deviate from your plan.  Its very easy for someone to come up to you and say, “hey, this band is in town” and you will compromise your budget for the sake of immediate gratification.  Stick to the plan and in the long term it will help you.

An important aspect in maintaining your budget and your discipline is to set a goal for yourself.  Money is just a figure and doesn’t really correlate with incentive to budget and save.  For this reason you should set a reward for yourself.  For example, if you are able to save $10,000 by the end of the year you should reward yourself with a $2,500 vacation.  You should set this goal at the beginning of your budgeting and, unlike having your goal just to save money, it will inspire you and give you motivation.  It is also better in that you will see a light at the end of the tunnel instead of a constant, repetitiveness.  Your budget goals should be realistic.  Do not expect that you will be able to save $10,000 if in order to do that you will have to eliminate all pleasures from your life, live off of bologna sandwiches, and use one ply toilet paper.  Live within your means but allow for some leeway so that budgeting is not a chore.  The best way to destroy your budget plan is to set your goals too high and lose interest at the first sign of adversity.

You must stay focused on the future.  You will not realize gains from budgeting immediately and you may not even have any real gain after a year or two but it will happen if you budget accordingly.

A closed end fund is a collective investment scheme that has a limited number of shares.  What distinguishes a closed end fund from an open end fund is that a closed end fund does not, for the most part, issue new stock once the closed end fund begins operations.  A closed end fund will also not be redeemable for cash or securities until the liquidation of the closed end fund.  

Closed end funds are exchanged on secondary markets, mostly on The New York Stock Exchange but have also been traded on NASDAQ.  A closed end fund is created, owned and controlled by a funds management company.  The closed end fund will issue stock to investors.  At the point where the stock has been completely sold off the fund will close to new investors and the closed end fund will begin operations.  A closed end fund is investment scheme where all the money that is pooled into the fund is used by the funds management company to invest in stocks, bonds, and other securities.  The diversification of the investment funds from a closed end fund are virtually unlimited but most closed end funds have some type of investment scheme, found in their charter, that will limit the type of securities that they may invest in.

A number of main features that distinguish a closed end fund from an open ended fund are that the closed end fund is closed to new investors once the closed end fund begins to operate.  At that point the only way to get shares from a closed end fund is through exchange on a secondary market.  Another distinguishing factor is that the shares trend on a stock exchange exclusively rather than redemption.  Unlike an open ended fund, a closed end fund is capable of investing in unlisted securities.  Also unlike open ended funds, a closed end fund is permitted to get capital through the issuance of preferred stock as well as by taking on long term debt.

Closed end funds act much like bonds in that the purchase price of the closed end fund may be lower than the face value of the closed end fund.  For example, you may purchase a share of a closed end fund for $75 even though the value of the share is listed at $100.  This is one of the advantages of being involved with a closed end fund.  However, because of the inability of a closed end fund to seek new investors after operation it is difficult for a closed end fund to deal with difficult economic conditions or the raising of capital for new ventures.  

If you are looking for closed end funds you can discus the matter with an investment broker.  The most popular, and profitable, closed end funds are: Adams Express Co., Foreign & Colonial Investment, Scottish Mortgage Investment Trust, Tri-Continental Corp., and General American Investment Co.

An index fund is a collective investment scheme, very much like a mutual fund, where the goal is to mimic specific market indexes.  One of the key aspects of a market index is its passive management.  Index fund management is usually set by an algorithm with the goal being to maintain the index ratio. 

The way that index funds are rated is based on their tracking error.   The difference between the index performance and the fund performance is considered tracking error.  The index funds that have the best success are the one’s that are able to gauge the index the best and have the lowest tracking error.  One of the hallmarks of an index fund is that there is less risk involved than in traditional stock trading or mutual funds.  Where as trading in the stock market and mutual funds is asset specific and usually involves a diversification of high and low risk investing an index fund will be highly diversified in all aspects of that individual market.  It is very difficult to “lose one’s shirt” when investing in an index fund.  In the alternative, the returns on investment are somewhat standardized and one can expect a certain return on their investment that will be low, but stable.  There are many types of index funds.  The most popular is trend indexing.  Trend indexing involves the practice of owning a portion or representative collection of securities in the same ratio as the target index.  

There are numerous advantages to investing in an index fund.  Index funds are relatively inexpensive.  Because index funds are managed passively they are do not need to employ expensive market analysts and stock brokers.  As such, the expenses associated with index funds are relatively inexpensive in comparison to mutual funds and playing the stock market.

Index funds also have the advantage of being associated with low risk.  Because the goal is to mimic the index itself, the index fund will be highly diversified so the failing of one aspect of the index will not have a catastrophic effect on your investment.  In contrast, mutual funds and other specific investments are often security specific and the failing of one aspect of the fund can seriously affect the value of the mutual fund.

Index funds are also beneficial in considering turnover.  A study performed over the last 16 years has shown that the return on an investment through a mutual fund is only 47% on the average whereas in a index fund that return is more like 87%.

There are disadvantages to an index fund.  The goal of the index fund is to mimic the index itself.  For that reason an investor will not run the high risk on his, or her, investment.  In the alternative, the investor in an index fund will not receive a high return on his investment.  It is very difficult to outperform the index and for that reason the return on the investment will be stable but low.

Another disadvantage is that the index fund sells and buys investments in the index fund based on when entities enter and leave the index.  The S&P 500 has an annual turnover rate of between 1% and 9%.

Investing is the general term for placing money, or assets, in a fund, or program, in order to realize a return.  Investing is a very broad term and can include stocks, bonds, real estate, mutual funds, and a number of others.  When you are considering entering into the investment market it may seem complex and; to an unskilled, or novice, investor, be a form of gambling.

When investing for beginners you will want learn a great deal about certain aspects of investing.  Do I need a broker?; What kind of investments are out there?; What investments are right for me?; and the common terms used in analyzing investment options.

A broker is an individual whose profession is to help individuals invest their money in securities.  Brokers come in many shapes and sizes.  Brokers can specialize in real estate, stocks, bonds, futures, commodities, mutual funds, and a number of other areas.  Some brokers deal specifically with a certain type of security whereas other will be able to help you invest in any and all securities that you may be interested in. 

When looking for a broker you have two general options.  You may take advantage of a traditional broker, and brokerage house, or you can use a discount broker.  A traditional broker is an individual, usually associated with a brokerage house, who will, not only purchase the securities you wish for your portfolio, but give you investment advice and offer a range of investment opportunities.  On the other side of the coin are the discount brokers.  Discount brokers tailor to the self-directed investor and generally leave the investor to make their own decisions.  

Investing for beginners is most advantageously done through traditional brokers.  There are many advantages and disadvantages when an investor is considering whether to use a traditional broker or a discount broker.  Traditional brokers are expensive and their services will cost you much more than a discount broker.  In exchange for the higher fees a traditional broker will work with you, one-on-one, to help you devise investment strategies, build a portfolio, give you information on how your investments are doing, and often be available for phone conversations or through e-mail to discuss your investing.  Another advantage of dealing with a traditional broker is their expertise in the field.  Traditional brokers make their living investing in securities and have garnered a wealth of experience determining which investments are sound and which are risky ventures.  By hiring a traditional broker a beginning investor will be able to compete in the investment market without suffering from his, or her, lack of expertise.  

Disadvantages to using a traditional broker are that they can be expensive.  Because you are getting the one-on-one advice and expertise of a professional investor the costs of that will be much greater than when you use a discount broker.  Another disadvantage that may come from the use of a traditional investor is neglect.  Traditional investors have many clients and most often than not the beginning investor does not have a lot of capital invested through the traditional brokerage house to warrant the individual time that an individual who has a lot of money invested will.  Because of this the beginning investor may find it hard to get in touch with their traditional broker to stay abreast of certain investment situations.

Discount brokers are another option when considering investment opportunities.  There are numerous options for discount brokers in the investment market.  Some of the most popular discount brokerage houses are E-Trade, Ameritrade, and TD waterhouse.  One of the advantages to having a discount broker is that the cost is fairly minimal.  For use of the service the discount broker will usually charge a fee of between $8 – $30 per transaction; they may also require you to pay a nominal monthly, semi-annual, or yearly fee.  In addition, a discount brokerage house will allow you easy and, almost instantaneous, access to investing.  You will be able to invest from your home, online, and easily place orders for the buying and selling of securities.  

The disadvantages associated with discount brokerage houses are high and it is usually not recommended when investing for beginners.  Discount brokerage houses, when you are a beginner, are, in a way, a legalized form of gambling.  Discount brokerage houses offer investors a plethora of information and give the investor every opportunity to use that data to research stocks, bonds, etc.  However, when investing for beginners the information supplied can be complicated and often times when a beginning investor attempts to navigate that information they will either ignore it or be confused on what is the right option.  A traditional broker will be able to walk you through all this information and help you come to a conclusion on how you should invest.  In contrast, a discount broker will leave all the decisions up to you. Another disadvantage to discount brokers is akin to “drunk dialing.” With the almost instantaneous access to discount brokerage houses an investor can make quick, and often hasty, decisions when it comes to investing.  A beginning investor may see a news report about a certain product, or corporation, and without doing research or thinking about it logically the beginning investor can put $1000 down and order the purchase of securities.  If you go through a traditional broker you will have to call him, or her, and place your order personally, or over the phone.  Your traditional broker will be in the best position to help you analyze your decision and make sure it is wise and you’re doing it for the right reason.  After all, when you make money the traditional broker makes money and when you lose money it looks bad for your traditional broker.

Going through traditional and discount brokerage houses are not your only option.  When investing for beginners it is always a good idea to put your capital into “blue chip” investments.  Blue chip investments are those that have been considered, through years of existence, to be sound investments.  They may not give the investor the yearly returns that they would from “penny stocks” but the existence of the security is consistent and it is a very sound investment.  Blue chip stocks are those that an investor will purchase as a long term investment.  These kinds of securities are the major corporations such as IBM, Apple, Disney, Google, Microsoft.  They should be purchased and forgotten about until one day, 30 years from now you decide to sell those securities.  

Investing in blue chip stocks can occur through a few different avenues.  The most basic way is going directly through the company itself.  When your are investing for beginners you will often want to invest in one or two companies that you know will do well.  The advantage to this is that you will avoid all costs associated with a broker, traditional or discount.  The trade itself will cost you nothing and your only expense will be for the security itself. 

Once you are invested in the security you will be considered an owner of the company.  Depending on the type of security you purchase and whether the security is “common” or “preferred” you will be given different rights and liabilities.   We will not get into the different types of stock you can purchase in this article. 

Once you are an “owner” of securities in a company you can continue to invest in that company in a number of different ways.  The first option is to have a Dividend Reinvestment Plan.  A Dividend Reinvestment Plan will allow the securities holder to automatically reinvest any dividends, if their security allows for them, back into the company for the purchase of more securities.  One of the advantages of this is that you do not necessarily have to put the money in to purchase an entire share in the company.  Often your dividend reinvestment will only give you a fraction of a share, this may seem small but when you purchase directly you will often be required to purchase an entire share or nothing.  A dividend reinvestment plan also allows the investor to authorize a direct withdrawal from your bank account on a monthly, semi-annual, or annual basis for the re-investment in the security.  This is beneficial if you like the security and, especially with blue chip stocks, it allows for continuous investment in a long term security without having to think about it.  

There are numerous types of securities that you should think about when investing for beginners.  The traditional types are stocks, bonds, mutual funds, and real estate. 

Stocks are essentially part ownership in a company.  The company can be either privately or publicly owned and is a great investment for those who are skilled in investing.  Stock takes on many different forms and some include voting rights while others include dividends and other perks.  When you invest in a stock your value in the stock will increase or decrease depending on the fluctuations of the companies value.  

A bond is different from a stock in that a bond gives the investor no ownership in the company.  A bond acts more like a debt owed than anything else.  When a company, or government entity needs to raise capital they will often sell bonds to investors.  The bond allows for the company, or government, to raise money with the requirement that they pay the investor interest that will accumulate over the period of the bond.  A bond can be short term or long term and the return on the investment, unlike stocks which can be risky, is relatively fixed and is a great form of long term, stable investing.  Investing in government issued bonds are one of, if not the most, stable forms of investing and you will be virtually guaranteed to benefit.  The disadvantage of bonds is that the rate of return is low, usually around 5% of the initial investment.

A mutual fund is the pooling of money into an investment fund that focuses on investing in certain stocks, bonds, and commodities.  Mutual funds, unlike stocks and bonds, are not directly purchased by the investor.  In a mutual fund the investor will give capital to a mutual fund.  The fund manager will then take all the pooled money from all the investors and purchase stocks, bonds, commodities, etc. that are in line with the mutual funds investment strategy.  You can get involved with mutual funds that focus primarily on energy stocks, entertainment stocks, or a number of other specialized industries.  Mutual funds are often the easiest and most stable forms of investing because you are taking all the decision making out of your own hands and entrusting a specialist to diversify and invest.  

A bond is a debt commodity that an entity will issue in order to raise capital for a company, government, school district, or even for the building and development of apartment complexes.  A bond is unlike stocks, mutual funds, and other investment opportunities in that it does not operate as ownership, or a security interest, in an entity.  The way a bond works is that an entity will issue a bond for a face amount for purchase by an investor.  At that point the entity has an obligation to, over time, repay the debt with interest.  In this scenario a bond holder is not an owner of the entity but is rather a creditor of the entity.  The entity is the debtor and is obligated to repay the bond, or loan, within the prescribed period; much like when you take out a mortgage you are indebted to the bank, or lending institution, that you borrowed the funds from.

Bonds have their advantages and disadvantages for both the entity issuing the bond and for the investor.  Advantages for the investor are that they are not required to sell you an interest in the company.  Especially with start up companies the entity will want to retain control and keep as much of the ownership of the company as possible.  This will be done by issuing bonds.  By doing so the company will be able to get the capital it needs to operate and expand the company while, at the same time, retaining complete ownership of the company.  The disadvantage to this is that the company will be required to pay back the bond at regular intervals, and with interest.  Whereas the issuance of stock, and other forms of capital, do not require any further obligations in paying the stockholder, a bond issuer is required to maintain repayment plans and if a company loses money it is still obligated to repay the bond, with interest whereas the investor in stocks sinks or swims with the company.  

Another advantage to bonds is that the investment is stable.  An investor in a bond will be assured of a specific return, unless the company goes bankrupt.  If you purchase a fixed bond for $100 with a fixed interest rate of %10 over 5 years you will be virtually guaranteed that you will receive $110 at the end of the 5 year period.  This is a sound investment for those who wish to invest casually or in investments that will allow them stability and peace of mind.  The downside is that bonds, in the most part, do not have a high rate of return.  Because of the stability and low risk of bonds they do not carry with them a high rate of return.  However, this depends on a number of factors including the length of the bonds maturity; whether the bond issuer is an established company, government entity, or if it is a start-up or troubled institution; and the extent of the current market.  For example, if IBM decides to issue bonds to investors it will most likely have low rate of return due to the stability of the company, and the, almost, guaranteed return on investment.  In contrast, a start-up company, or troubled institution, that issues bonds to investors in the troubled economic climate of 2011 will have to offer a high percentage of interest on their return in order to convince investors to take a chance on the bond.

When looking at bonds you will want to know the basics defining certain aspects of a bond:

FACE AMOUNT: The amount that the bond is worth on its face.

ISSUE PRICE: Is the amount of money that the debtor pays for the bond. The issue price is not necessarily the amount that the bond is equal to. Often bonds are sold at a discount where a debtor will buy a $100 bond for $75. Upon maturity the debtor will receive $100 plus interest.

MATURITY DATE: This is the amount of time it will take for the bond to mature to the face amount. Bonds that have a maturity date of less than one year are not necessarily bonds and are referred to as Money Market Securities

COUPON: This is the amount that the debtor will receive on a semi-annual or annual basis, depending on the bond, The Coupon signifies the payment of the creditor to the debtor in compliance with the bond agreement.

yield to maturity, also known as redemption yield of a bond is the internal rate of a return that an investor will receive upon the maturity of a privately or government issued bond.   A bond does not give the debtor any interest in the institution but obligates the creditor to pay the debtor interest, in the form of a coupon, until the bond reaches its maturity.

Yield to maturity is calculated by an A.P.R. (annual percentage rate) but the interest is actually dispersed in a semi-annual basis in which the debtor will receive a coupon, consisting of the percentage of the face amount plus interest. For example, if a 10 year bond is sold with a face amount of $100 at 10% Yield to Maturity that means that every 6 months the debtor will receive a coupon of $5.50 (The $100 face amount + $10 (the interest accumulated over the 10 year life of the bond) / 24 (the number of coupons that are distributed over the 10 year period).

Yield to maturity rates depend on a number of factors including the current market rates, the length of the term and the creditworthiness of the issuer. Typically the longer the bond maturity length the higher the yield to maturity will be. On the same note, the more stable the issuer the less the yield to maturity rate will be. United State Treasury Bonds are considered to be one of, if not the most, stable bond an investor can purchase. The return on your investment is practically guaranteed and for that reason the coupon amount and the yield to maturity will be lower.

There are many different types of bonds that an investor can purchase.  When investing in bonds you will want to, not only look at your expected return and interest, but also the stability of the bond, and how long it will take for the bond to reach maturity.  

Municipal bonds allow an investing in bonds in your community.  Your local government, school district, or other entity in your local community may issue bonds for the use of infrastructure.  By investing in bonds that involve your local community it allows the investor to make a sound investment while, at the same time, giving the investor a sense of contribution to his, or her, municipality.  Investing in bonds with your municipality are, not only stable investments, but are also exempt from most, if not all, state taxes.  The downside of municipal bonds is that investing in bonds in your locality are expensive.  Most municipal bonds require a minimum investment of $10,000 to $100,000.  Another disadvantage is that the amount of money that you are expected upon your maturity date does not factor in for inflation.

Corporate bonds are another form of investing in bonds that is very popular.  Investing in corporate bonds is the riskiest form of investing in bonds, however they yield at maturity, can be much higher than that involved with municipal, state and federal bonds.  The downside to corporate bonds is that their is higher risk involved.  Because a corporate entity is more likely to dissolve than a municipality or other government entity the risk will be higher.  The more prone to dissolution the company the higher the risk, yet in the positive, the yield will be greater.  

The most stable form of bond is the United States Savings Bond.  A United States Savings Bond is almost guaranteed and they come in many different forms.  The two most prevalent are the EE savings bond and the I savings bond.

The EE savings bond is characterized by a stable, long term investment.  WIth EE savings bond the federal government will require a long term investment of 20 years in order for the bond to reach its maturity level.  There are two types of EE savings bonds: paper EE savings bonds and electronic EE savings bonds.  The most important distinction between the two is their return on investment.  With a paper EE savings bond the investor will get a yield on return of the value he invested upon the maturity of the bond.  This means that if you invested $5,000 then in 20 years you will receive a payment of $5,000 plus the interest accumulated over that period of time.  In contrast, an electronic EE savings bond will require you to pay half of the value of the savings bond and upon its maturity you will receive the face value; essentially allowing you to double your investment.  You are not required to keep your investment for the 20 year period in either form of EE savings bonds but their is a penalty for early withdrawal.  The disadvantages to EE savings bonds are the long maturity length, and the fact that an individual is allowed a maximum of $25,000 of investment per year.  EE savings bonds are exempt from state and local taxes but they will be used to calculate federal tax income.  In addition, EE savings bonds do not adjust for inflation.

The other type of United States Savings Bond that is very prevalent is the I bond.  An I bond is a U.S. savings bond where the yield on maturity is calculated as the fixed rate of return plus inflation.  The I bond is periodically adjusted to factor in for inflation and the yield at the end of the maturity will be in a way that you will not lose money based on the inflation rate.  One of the disadvantages of an I bond is that it is considered a zero coupon bond.  The interest that accumulates over the lifetime of the bond is automatically re-invested into the I bond.