In order to finance the daily activities of the Federal government, the Treasury Department issues I.O.U.’s to investors and governments around the world. As of the end of 2019, the Treasury had more than $23 trillion dollars in outstanding debt obligations. Based on a U.S. population of about 330 million, this amounts to roughly $70,000 in federal government debt per citizen (gulp!).
State and local governments (municipalities) also issue debt to fund projects and operations within their jurisdiction. The main attraction to municipal debt is the tax advantage received by high-income investors. Interest received from municipal bonds is exempt from federal income tax, and if the owner lives in the state where the bond is from then they in many cases do not have to pay state income tax either.
Debt issued by corporations represents the largest type of fixed-income market based on total bonds outstanding. Investors demand a higher return on their loans to companies since they are much more likely to default on their loans (i.e. failing to pay interest or return the original amount of money you invested when the loan expires/matures) when compared to Treasury and Municipal debt
The types of investments we have reviewed thus far are the ones you will most likely encounter or already have seen at this point in your investment life. The following is a list and brief description of other asset/investment types that you may find available to you, but in most cases, you should just ignore them.
Financial Basics
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All information included in this page and all pages throughout Young Money, Smart Money is provided for informational and educational purposes only and should not be taken as investment advice or a recommendation to invest accordingly. Investing involves risk, including a potential for a loss of principal. Educate yourself about all investments and funds you purchase, including their risks, objectives, and fees and expenses before investing. For additional assistance, please contact us or another financial professional for a more detailed review of your specific situation.
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