Coming to terms: Bulls, bears, I Bonds and annuities
An explanation of some commonly used business terms.
Q: What do the terms “bull” and “bear” mean?
A: Someone is “bullish” if they expect a particular stock or the market to go up.
A bear is pessimistic, expecting a drop.
No one can know what the market will do in the short term, but its long-term trend has been up.
Over many decades, the stock market has averaged about 10 percent per year — despite market crashes, world wars and the Great Depression.
Q: What are I Bonds?
A: I Bonds are savings bonds offered by the federal government, with inflation-adjusted interest payments.
They feature limited risk (the U.S. government is known to be reliable), tax advantages, small investment amounts (as little as $25) and protection against inflation. Interest can even be taken tax-free if used for educational expenses.
On the downside, the bonds’ interest rates are low these days — at 1.76 percent recently and due for a semiannual adjustment on Wednesday (May 1).
That beats most savings accounts or CDs, though.
You’ll also lose some money if you cash out early (within five years), and over the long haul, money tends to grow much faster in stocks than in bonds.
Per data from the folks at FundX, stocks outperformed bonds in every 25-year period between 1925 and 2011, with stocks averaging an 11.4 percent annual return and bonds averaging 4.3 percent.
Still, bonds remain a valuable way to diversify and strengthen a portfolio.
I Bonds can protect your money, but they’re not likely to make you rich.
Q: What is an annuity?
A: An annuity is a contract between you and (usually) an insurance company.
In exchange for a big chunk of cash today, the insurance company agrees to pay you an income for a specified period, which can be a certain number of years or the rest of your life.
The three broad categories of annuities are lifetime income annuities, equity-indexed annuities and variable annuities.
The Motley Fool