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Investing For Dummies®, 5th Edition by Eric Tyson, MBA

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Chapter 7. Exploring Bonds and Other Lending Investments

In This Chapter

  • Getting the most out of a bank

  • Selecting the right type of bonds for you

  • Choosing among individual bonds and bond mutual funds

  • Understanding guaranteed-investment contracts and private mortgages

Lending investments are those in which you lend your money to an organization, such as a bank, company, or government, which typically pays you a set or fixed rate of interest. (Ownership investments, by contrast, provide partial ownership of a company or some other asset, such as real estate, that has the ability to generate revenue and potential profits.)

If you really want to make your money grow, lending investments aren't for you. However, even the most-aggressive investors should consider placing some of their money into lending investments. Table 7-1 shows when such investments make and don't make sense.

Table 7-1. Lending and Ownership Investments Compared

Consider Lending Investments If . . .

Consider Ownership Investments When . . .

You need current income.

You don't need or want much current income.

You expect to sell within five years.

You're investing for the long term (seven to ten-plus years).

Investment volatility makes you a wreck or you just want to cushion some of the volatility of your other investments.

You don't mind or can ignore significant ups and downs.

You don't need to make your money grow after inflation and taxes.

You need more growth to reach your goals.

Lending investments are everywhere — through banks, ...

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