Bonds

• Bonds are debt obligations that promise to pay the holder--the creditor--regular interest payments for the duration of the maturity period, when the bond issuer--the borrower--must pay back the principal. Bonds are issued by local and national governments, as well as companies.
  
  

Mortgage-Backed and Asset-Backed Securities

• These are bonds of pooled mortgages issued by banks in order to reduce risk from lending to less creditworthy clients. When homeowners make their monthly payments to their banks, a part of the interest and principal is passed on to the security holder.
  
  

Preferred Stock

• As with common stock, preferred stock gives the holder part ownership of a company. The difference is that preferred stock pays fixed dividends, before payments to owners of the common stock. The downside is that preferred stock does not give its owners voting rights and tends to grow less in value.