As a child, I remember getting my first savings bond. It was exciting! I was putting money away for my future, and getting a better rate of return on my money than the bank provided. Eventually, that little savings bond grew into a down payment for my first house. There are many reasons why your investment portfolio should hold onto some savings bonds, and its a shame that fewer and fewer people are taking advantage of this very useful investment vehicle.
Chances are, even if you have never received a savings bond in your name or had anything to do with them, you probably have some idea of what a U.S. savings bond is. If not, it's okay; they seem to be dwindling in popularity as of late, as fewer people are educated every day on the benefits of a U.S. Savings Bond. If you aren't really sure what a U.S. savings bond is and how they may or may not have a place in your life, read on for more information.
US Savings Bonds - What Are They?Savings bonds are a type of long term investment that used to be rather popular. There are a whole slue of different types of savings bonds out there, but this type of savings bonds are by far the most reliable, being backed by the United States government in quality and guarantee, and that is something that definitely plays on the positive side of the U.S. savings bond. In all actuality, a savings bond of this type is actually a loan to the U.S. government and the bond itself is a guarantee that the 'loan' will be paid back in full after a set period of time during which the bond will mature.
Where Can U.S. Savings Bonds Be Obtained? A great place to buy a savings bond is at your local bank. The most popular type of US Savings Bond are the Series EE which can be purchased at half the face value. So a $100 bond would cost $50. The minimum purchase is $25 while the maximum is $30 000 (although, you can purchase an additional $30 000 electronically). These types of bonds earn market based rates which change every 6 months. As such, there is no way to predict when it will reach its face value. These bonds much also be held for a minimum 12 months.
The other type of US Savings Bonds are the I Bonds which are an accrual type investment. Simply put, interest is added to the bond on a monthly basis. The rate of interest is determined each May and November and is based on the Consumer Price Index.
When Can I Cash in My US Savings Bond? Depending on the type of bond you purchased, the maturity date will differ. Knowing your savings bond before you buy is always a smart move. Since you purchase your I Bond at face value and receive interest annually, you can cash in any time after the 12 month period after you initially bought. However, its important to remember that if you cash in your I Bond within the first 5 years, there is a 3 month interest penalty. This is to encourage long term savings. As for the Series EE Bonds, if you hold til maturity, you do not get interest on your investment after that period. So remembering your maturity date is key. You can cash in your Series EE Bonds any time after the first 12 months after you bought them.
There is of course that little annoying thing called taxes! There are some tax advantages to owning US Savings Bonds, so it pays to ask your bank about them. If you are looking for a long term investment vehicle, that will help protect your hard earned money, then US Savings Bonds are for you. You don't have to own all savings bonds or all stocks. A mix depending on your age is always a good bet. Protecting your money is what its all about.
By: Christopher Smith
ABOUT THE AUTHOR
Visit us for more information on stock market investing, which is better: stocks vs bonds and Vanguard mutual funds overview.
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Thursday, August 16, 2018
Friday, August 10, 2018
Bonds issued in foreign currencies
Some companies, banks, governments, and other sovereign entities decide to create bonds in foreign currencies that appear to be more stable and predictable than their domestic currency. Issuing bonds denominated in foreign currencies also guarantee issuers the ability to access investment capital available in foreign markets.
Companies use the proceeds from the issuance of these bonds to break into foreign markets, or convert them into the issuing company's local currency and use them on existing operations through the use of foreign exchange swap hedges. Foreign issuer bonds can additionally be used to hedge foreign exchange rate risk.
Some foreign bonds have nicknames, such as the "samurai bond." which can be issued by foreign issuers looking to diversify their investor base away from domestic markets. However, note that not all of the following bonds are purchase restricted by investors in the market of issuance.
These bond issues are typically governed by the law of the market of issuance, e.g., a samurai bond issue, issued by an investor based in Europe, will be governed by Japanese law.
Eurodollar bond is a U.S. bond issued by a non-U.S. entity outside the U.S Kangaroo bond and it is dollar-denominated while an
Australian bond is issued by a non-Australian entity in the Australian market and is Australian dollar-denominated.
Maple bond, a Canadian bond issued by a non-Canadian entity in the Canadian market and is Canadian dollar-denominated.
Samurai bond, a Japanese bond issued by a non-Japanese entity in the Japanese market and is yen-denominated.
Shibosai Bond is a bond in Japanese market private placement with distribution limited to institutions and banks.
Yankee bond, a US bond issued by a non-US entity in the US market and is US dollar-denominated.
Shogun bond, a bond issued in Japan by a non-Japanese institution or government and is non-yen-denominated.
Bulldog bond, a bond issued in London by a foreign institution or government and is pound sterling-denominated.
Matrioshka bond, a Russian bond issued in the Russian Federation by non-Russian entities and is rouble-denominated. The name comes from the famous Russian wooden dolls, Matrioshka, common for foreign visitors to Russia.
Arirang bond, a bond issued by a non-Korean entity in the Korean market and is Korean won-denominated.
Kimchi bond, a bond issued by a non-Korean entity in the Korean market and is non-Korean won-denominated.
Formosa bond, a bond issued by a non-Taiwan entity in the Taiwan market and is non-New Taiwan Dollar-denominated.
Panda bond, a bond issued by a non-China entity in the People's Republic of China market and is Chinese renminbi-denominated.
ABOUT THE AUTHOR
James khan is an expert in writing about legal forms and documents that may help you when your in the search of the right legal document. He writes many articles about forms ranging from, power of attorney forms, landlord tenant forms, and almost any legal form that your searching for. http://www.forms.com/
Companies use the proceeds from the issuance of these bonds to break into foreign markets, or convert them into the issuing company's local currency and use them on existing operations through the use of foreign exchange swap hedges. Foreign issuer bonds can additionally be used to hedge foreign exchange rate risk.
Some foreign bonds have nicknames, such as the "samurai bond." which can be issued by foreign issuers looking to diversify their investor base away from domestic markets. However, note that not all of the following bonds are purchase restricted by investors in the market of issuance.
These bond issues are typically governed by the law of the market of issuance, e.g., a samurai bond issue, issued by an investor based in Europe, will be governed by Japanese law.
Eurodollar bond is a U.S. bond issued by a non-U.S. entity outside the U.S Kangaroo bond and it is dollar-denominated while an
Australian bond is issued by a non-Australian entity in the Australian market and is Australian dollar-denominated.
Maple bond, a Canadian bond issued by a non-Canadian entity in the Canadian market and is Canadian dollar-denominated.
Samurai bond, a Japanese bond issued by a non-Japanese entity in the Japanese market and is yen-denominated.
Shibosai Bond is a bond in Japanese market private placement with distribution limited to institutions and banks.
Yankee bond, a US bond issued by a non-US entity in the US market and is US dollar-denominated.
Shogun bond, a bond issued in Japan by a non-Japanese institution or government and is non-yen-denominated.
Bulldog bond, a bond issued in London by a foreign institution or government and is pound sterling-denominated.
Matrioshka bond, a Russian bond issued in the Russian Federation by non-Russian entities and is rouble-denominated. The name comes from the famous Russian wooden dolls, Matrioshka, common for foreign visitors to Russia.
Arirang bond, a bond issued by a non-Korean entity in the Korean market and is Korean won-denominated.
Kimchi bond, a bond issued by a non-Korean entity in the Korean market and is non-Korean won-denominated.
Formosa bond, a bond issued by a non-Taiwan entity in the Taiwan market and is non-New Taiwan Dollar-denominated.
Panda bond, a bond issued by a non-China entity in the People's Republic of China market and is Chinese renminbi-denominated.
ABOUT THE AUTHOR
James khan is an expert in writing about legal forms and documents that may help you when your in the search of the right legal document. He writes many articles about forms ranging from, power of attorney forms, landlord tenant forms, and almost any legal form that your searching for. http://www.forms.com/
Wednesday, August 1, 2018
The Role of Bond Funds in Your Portfolio
Bonds provide an income stream and help diversify a stock portfolio. A bond's total return includes both income and capital appreciation or loss. Bonds are subject to credit risk, interest rate risk, and market risk. Investors can buy individual bonds or bond mutual funds. Investing in bond mutual funds allows individuals to diversify among many different bond issues, thereby reducing credit risk.
Bonds are very popular securities because they regularly pay interest income and pay back the initial principal after the bond matures. Bonds are popular with people of various risk classes but they certainly appeal to conservative investors looking for a steady income stream. Bond mutual funds may be even more attractive than buying into individual bonds because they provide a portfolio with increased diversification at a low-cost. Needless to say, before considering to purchase into a bond fund consider your risk tolerance, objectives, and income needs and compare that to the goals, risk level, and investment style of the bonds or bond funds you are interested in.
What is a Bond?
A bond is simply a loan between an investor and the bond's issuer. Say a company issues bonds and an investor can buy those bonds or in other words provide a loan to the company in return for a promise to pay back the initial investment after a specified period along with interest during the intervening period. The interest rate agreed upon by the company and the investor is called the coupon rate. When the bond matures or in other words when it's time for the company to pay back the loan, the issuer repays the investor's original investment.
Since bond markets generally don't move in tandem with equity markets, they can provide investors with the added diversification in their portfolios. Furthermore, they provide investors with a steady income stream. The only exception to this rule is for zero-coupon bonds, which from their name indicate that there are no interests rates attached to these bonds so there is no income paid out over time; however, even though zero-coupon bonds provide no cash flow they are sold at a discount to their face value and at maturity the investor gets paid the full face value of the bond.
There are many kinds of bonds available each having varying risks, benefits, tax implications to an investor's overall portfolio. Most bonds can be generally organized under four major categories: corporate, government, government agency, and municipal. Corporate bonds are issued by corporations and depending on the corporation that is issued them they can vary in risk. For instance, a small company issuing bonds can offer attractive yields to investors but can at the same time bring with it substantial amount of risk whereas a large-cap company can issue bonds that can be less risky because the investor knows that the chances of the large-cap company to default is slim. On the other hand, government bonds are probably the safest types of bonds because they are issued by the U.S. Treasury and backed by the credit of the U.S. government. Government agency and municipal bonds can vary substantially in risk but they typically fall between corporate bonds and government bonds on the risk spectrum.
Bond Mutual Funds
Many investors want the benefit of diversification to minimize their risk and they generally achieve this end by purchasing a bond mutual fund. This way investors can combine may different bonds into one portfolio and still pursue their fixed income objectives. Because bond funds aim to provide a steady income stream to investors, they are suited to investors that are looking to firstly minimize the impact of equity market fluctuations on their portfolios and secondly to protect their principal and current income. Bond funds may be the most appropriate for investors that are nearing retirement, are in retirement or others who do not easily tolerate fluctuations in the value of their portfolios. However, a bond fund is simply a pooled resource that invests in many bonds, so before investing consider the underlying individual bonds held in the portfolio particularly paying close attention the risk of those individual bonds and how that overall risk may affect the fund and your portfolio.
Risks
All bonds have come level of "credit risk," which is the risk that the bond issuer will go into default before the bond matures. In that instance, you may lose a portion or all your original principal and any income that may have been due. Bonds are often rated by Moody's and Standard & Poor's (S&P) to provide investors on the creditworthiness of the issuer; Aaa or AAA are the highest credit ratings given by these companies. Bond funds also can be issued ratings just like individual bonds based upon the quality of their underlying bond holdings.
Like stocks and other investments, bonds can have other risks from market fluctuations to an investor who is forced to sell them before their maturity date. If an investor is forced to liquidate his bond positions before their time and the bond's price has fallen at this time, he will lose part of his original investment as well as all future income from the interest. Another risk common to all bonds and bond funds is interest rate risk. Interest rates and bond prices have an inverse relationship, so when interest rates in the economy rise, the bond's price will generally fall and vice versa.
However, bond holders can avoid running the risk of fluctuating interest rates and market risk if they hold on to their bonds until maturity. On the other hand, bond mutual fund investors should consider these risks more carefully when purchasing into the bond funds they are interested in because fund managers can potentially buy and sell bonds as they see fit to meet the fund's objectives. As a result, interest rate risks and market risks become more prominent and therefore risk loss because of inherent fluctuations within the bond fund.
Types of Bond Funds
Bond funds also come in many forms each seeking to reach a different purpose and therefore buy and sell individual securities to achieve their goals. Similarly to individual bonds, different bond funds have different risk factors and benefits such as tax benefits. Some popular bond funds include corporate, U.S. government, and municipal bond funds.
Since U.S. government bond funds are composed of securities backed by the creditworthiness of the U.S. government, they hold almost no credit risk. Nevertheless, they are still affected by changes in market conditions, interest rates just like all other bonds, as well as inflation risks - not keeping pace with inflation specifically. U.S. government bonds are taxed at the federal level but are exempt from state level taxes. U.S. government bond funds typically appeal to conservative investors looking for steady income streams and solid protection of their principals.
On the other spectrum, corporate bond funds aim to invest in a variety of corporate issued bonds with different credit risks. Some companies can potentially have substantial credit risks while others have may have less. In addition, corporate bonds are affected by interest rate and market risks. Needless to say, the potentially riskier a bond is can mean that it has potentially higher yields; therefore, these investments may be suitable for investors that can tolerate a bit more risk in pursuit of higher interest income.
Municipal bond funds invest in a variety of bond issues of state government and municipalities. Municipal bonds are taxed at the state and local levels and are exempt from federal taxes. Because of their potential tax benefits, when compared to taxable securities, municipal bonds can be appropriate for investors in high federal tax brackets. Municipal bonds are affected by interest rate and market risks also.
Reduce Risk When Investing in Bonds
1. Try to match your bond maturities to your investment time frame. For instance, if you are retired and you need to withdraw from your portfolio each yeah to meet your day-to-day expenses, buy bonds or bond funds with maturities of one year. In addition, depending on your portfolio you can invest portions of your portfolio in intermediate bonds say 5 to 10 year bonds and long-term bonds (10 years +), for higher interest rate payments.
2. Long-term investors can reduce their risk by buying both short-term and long-term maturity bonds.
3. Buy bonds or bond funds with average maturities that range across the maturity spectrum but with heavier concentration in shorter maturities.
Choose the Fund That Meets Your Need
Although every bond fund carries its own risks, you should always strive to balance the risks with diversification. Diversification can help reduce your overall portfolio risk from any particular fund. Professional management can help you save the hassle from having to research and evaluate the thousands of bonds and bond funds in the market. The best strategy is to speak with your Isakov Planning Group Financial Advisor to determine what your fixed income needs actually are and then your financial advisor can identify funds that will help you meet your needs.
Things to take away
•Bonds provide an income stream and help diversify a stock portfolio.
•A bond's total return includes both income and capital appreciation or loss.
•Bonds are subject to credit risk, interest rate risk, and market risk.
•Investors can buy individual bonds or bond mutual funds.
•Investing in bond mutual funds allows individuals to diversify among many different bond issues, thereby reducing credit risk.
By: Yulian Isakov
ABOUT THE AUTHOR
Isakov Planning Group financial advisors bring industry leading resources and expertise to help clients pursue and achieve their goals. Along with expert market analysis from the firm's top investment managers, your Isakov Planning Group financial advisor will work with you to develop and deliver tailored solutions that can help you get on track and ultimately achieve your most important objectives, whether you're looking to plan for retirement, build tax-free wealth, get your kid's through college, or build a lasting legacy for your family. http://www.isakovgroup.com/
Bonds are very popular securities because they regularly pay interest income and pay back the initial principal after the bond matures. Bonds are popular with people of various risk classes but they certainly appeal to conservative investors looking for a steady income stream. Bond mutual funds may be even more attractive than buying into individual bonds because they provide a portfolio with increased diversification at a low-cost. Needless to say, before considering to purchase into a bond fund consider your risk tolerance, objectives, and income needs and compare that to the goals, risk level, and investment style of the bonds or bond funds you are interested in.
What is a Bond?
A bond is simply a loan between an investor and the bond's issuer. Say a company issues bonds and an investor can buy those bonds or in other words provide a loan to the company in return for a promise to pay back the initial investment after a specified period along with interest during the intervening period. The interest rate agreed upon by the company and the investor is called the coupon rate. When the bond matures or in other words when it's time for the company to pay back the loan, the issuer repays the investor's original investment.
Since bond markets generally don't move in tandem with equity markets, they can provide investors with the added diversification in their portfolios. Furthermore, they provide investors with a steady income stream. The only exception to this rule is for zero-coupon bonds, which from their name indicate that there are no interests rates attached to these bonds so there is no income paid out over time; however, even though zero-coupon bonds provide no cash flow they are sold at a discount to their face value and at maturity the investor gets paid the full face value of the bond.
There are many kinds of bonds available each having varying risks, benefits, tax implications to an investor's overall portfolio. Most bonds can be generally organized under four major categories: corporate, government, government agency, and municipal. Corporate bonds are issued by corporations and depending on the corporation that is issued them they can vary in risk. For instance, a small company issuing bonds can offer attractive yields to investors but can at the same time bring with it substantial amount of risk whereas a large-cap company can issue bonds that can be less risky because the investor knows that the chances of the large-cap company to default is slim. On the other hand, government bonds are probably the safest types of bonds because they are issued by the U.S. Treasury and backed by the credit of the U.S. government. Government agency and municipal bonds can vary substantially in risk but they typically fall between corporate bonds and government bonds on the risk spectrum.
Bond Mutual Funds
Many investors want the benefit of diversification to minimize their risk and they generally achieve this end by purchasing a bond mutual fund. This way investors can combine may different bonds into one portfolio and still pursue their fixed income objectives. Because bond funds aim to provide a steady income stream to investors, they are suited to investors that are looking to firstly minimize the impact of equity market fluctuations on their portfolios and secondly to protect their principal and current income. Bond funds may be the most appropriate for investors that are nearing retirement, are in retirement or others who do not easily tolerate fluctuations in the value of their portfolios. However, a bond fund is simply a pooled resource that invests in many bonds, so before investing consider the underlying individual bonds held in the portfolio particularly paying close attention the risk of those individual bonds and how that overall risk may affect the fund and your portfolio.
Risks
All bonds have come level of "credit risk," which is the risk that the bond issuer will go into default before the bond matures. In that instance, you may lose a portion or all your original principal and any income that may have been due. Bonds are often rated by Moody's and Standard & Poor's (S&P) to provide investors on the creditworthiness of the issuer; Aaa or AAA are the highest credit ratings given by these companies. Bond funds also can be issued ratings just like individual bonds based upon the quality of their underlying bond holdings.
Like stocks and other investments, bonds can have other risks from market fluctuations to an investor who is forced to sell them before their maturity date. If an investor is forced to liquidate his bond positions before their time and the bond's price has fallen at this time, he will lose part of his original investment as well as all future income from the interest. Another risk common to all bonds and bond funds is interest rate risk. Interest rates and bond prices have an inverse relationship, so when interest rates in the economy rise, the bond's price will generally fall and vice versa.
However, bond holders can avoid running the risk of fluctuating interest rates and market risk if they hold on to their bonds until maturity. On the other hand, bond mutual fund investors should consider these risks more carefully when purchasing into the bond funds they are interested in because fund managers can potentially buy and sell bonds as they see fit to meet the fund's objectives. As a result, interest rate risks and market risks become more prominent and therefore risk loss because of inherent fluctuations within the bond fund.
Types of Bond Funds
Bond funds also come in many forms each seeking to reach a different purpose and therefore buy and sell individual securities to achieve their goals. Similarly to individual bonds, different bond funds have different risk factors and benefits such as tax benefits. Some popular bond funds include corporate, U.S. government, and municipal bond funds.
Since U.S. government bond funds are composed of securities backed by the creditworthiness of the U.S. government, they hold almost no credit risk. Nevertheless, they are still affected by changes in market conditions, interest rates just like all other bonds, as well as inflation risks - not keeping pace with inflation specifically. U.S. government bonds are taxed at the federal level but are exempt from state level taxes. U.S. government bond funds typically appeal to conservative investors looking for steady income streams and solid protection of their principals.
On the other spectrum, corporate bond funds aim to invest in a variety of corporate issued bonds with different credit risks. Some companies can potentially have substantial credit risks while others have may have less. In addition, corporate bonds are affected by interest rate and market risks. Needless to say, the potentially riskier a bond is can mean that it has potentially higher yields; therefore, these investments may be suitable for investors that can tolerate a bit more risk in pursuit of higher interest income.
Municipal bond funds invest in a variety of bond issues of state government and municipalities. Municipal bonds are taxed at the state and local levels and are exempt from federal taxes. Because of their potential tax benefits, when compared to taxable securities, municipal bonds can be appropriate for investors in high federal tax brackets. Municipal bonds are affected by interest rate and market risks also.
Reduce Risk When Investing in Bonds
1. Try to match your bond maturities to your investment time frame. For instance, if you are retired and you need to withdraw from your portfolio each yeah to meet your day-to-day expenses, buy bonds or bond funds with maturities of one year. In addition, depending on your portfolio you can invest portions of your portfolio in intermediate bonds say 5 to 10 year bonds and long-term bonds (10 years +), for higher interest rate payments.
2. Long-term investors can reduce their risk by buying both short-term and long-term maturity bonds.
3. Buy bonds or bond funds with average maturities that range across the maturity spectrum but with heavier concentration in shorter maturities.
Choose the Fund That Meets Your Need
Although every bond fund carries its own risks, you should always strive to balance the risks with diversification. Diversification can help reduce your overall portfolio risk from any particular fund. Professional management can help you save the hassle from having to research and evaluate the thousands of bonds and bond funds in the market. The best strategy is to speak with your Isakov Planning Group Financial Advisor to determine what your fixed income needs actually are and then your financial advisor can identify funds that will help you meet your needs.
Things to take away
•Bonds provide an income stream and help diversify a stock portfolio.
•A bond's total return includes both income and capital appreciation or loss.
•Bonds are subject to credit risk, interest rate risk, and market risk.
•Investors can buy individual bonds or bond mutual funds.
•Investing in bond mutual funds allows individuals to diversify among many different bond issues, thereby reducing credit risk.
By: Yulian Isakov
ABOUT THE AUTHOR
Isakov Planning Group financial advisors bring industry leading resources and expertise to help clients pursue and achieve their goals. Along with expert market analysis from the firm's top investment managers, your Isakov Planning Group financial advisor will work with you to develop and deliver tailored solutions that can help you get on track and ultimately achieve your most important objectives, whether you're looking to plan for retirement, build tax-free wealth, get your kid's through college, or build a lasting legacy for your family. http://www.isakovgroup.com/
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