If you've been considering making an investment but aren't exactly
sure what you should invest in, you might want to consider making an
investment in bonds. An investment that is usually grouped together with
stocks, many people aren't overly sure what bonds are or how they
operate… a lack of understanding that can cause some people to overlook a
potentially lucrative investment opportunity.
If you're one of these people and have been wondering exactly
what bonds are and how you should invest in them, then read on… the
information below was designed for you.
Defining Bonds
The first thing that you need to know before investing in bonds
is exactly what bonds are. Bonds are a type of loan certificate issued
by governments, states, and some corporations for a period of time
greater than one year, as a means of raising money… when you buy a bond,
you are for all intents and purposes loaning that amount of money to
the issuer.
Bonds generally pay an interest rate to the purchaser, building
interest until the bond matures at which point the original investment
is repaid along with the interest that has been accrued along the way.
Researching Bonds
The history of bonds can be researched in much the same way that
the history of stocks can be, though there isn't as much potential for
great profits or losses in the bond market due to the bond's nature.
Information that can be gathered on bonds includes the issuer of
the bond, the date issued, and the date that the bond is set to mature.
Some other information may be available as well, depending upon the
method used to research the bonds.
Advantages and Disadvantages of Bonds
Since bonds are considered to be a type of loan, there is a bit
more security in bonds than in stocks in the instance that the issuer
suffers financial setbacks or goes under. Since they are generally being
repaid with interest, there is not the same fear of sudden loss of
value that is associated with stocks.
Bonds are also considered to be a
debt of the issuer, and bondholders are given the same priority on the
issuer's income as other debts in the case of financial problems.
Unlike stocks or equities, however, bonds do not convey any portion of ownership or control in the issuing agency or company.
Choosing Potential Investments
When looking at bonds to potentially invest in, you should take
into consideration the issuer, the interest rate that is being paid on
the bond, as well as the date that the bond was originally issued and
the date when the bond is set to mature. Ideally, you would want to
invest in bonds that have good interest rates over a longer period of
time, though this means that your investment won't mature until that
time has passed.
Choose your potential bond investments based upon this criteria
in order to find the bonds that will pay out the most to you upon
maturation… some shorter-term bonds may also be chosen if you're wanting
to try and reap some profits in less time, however.
Deciding to Invest
When making your final decision to invest in bonds, you should
make sure that you can afford to invest in a longer-term investment than
you may be used to.
Some bonds may take several years to mature, at which time your
investment will pay off… just make sure that you understand the patience
involved, and you're sure to get the most out of your bond investments.
About the author
John Mussi is the founder of Direct Online Loans who help homeowners find the best available loans via the www.directonlineloans.co.uk website.
Tuesday, February 12, 2019
Thursday, January 10, 2019
Fixed Rate Bonds Vs. ISA's
It is difficult to know where to put your money these days to get the
best returns, especially with the way the economy has suffered over
recent months, pushing the Bank of England to make a string of cuts to
its Base rate which have in turn been passed on to savers rates.
With the Base rate now down to the lowest level ever recorded, rates on normal savings accounts have been slashed, which has limited our saving options.
The two obvious choices in today's savings market are Fixed Term Bonds, and Individual Savings Accounts (ISA). Although both types of savings accounts have their similarities, there are several advantages and disadvantages to each and it is this topic of discussion that this article will be focusing on.
Fixed Term Bonds
Fixed Term Bonds provide a rate that is fixed throughout the duration of the bond, giving savers a predictable income with no surprises. Once you have chosen a fixed term account, you are able to calculate exactly how much interest you will earn, minus the tax, to give you your end balance.
Most Fixed Term Bonds offer very high deposit limits, generally between £500,000 to £2 million, but some, such as ICICI, will let you invest as much as you like. You must deposit the full amount upon opening the account and cannot add to this once active.
There are no limits to how many fixed term bond accounts you can open within any one year, so unlike ISA accounts, if you decide to close your account for any reason, you can still invest any amount elsewhere at any time.
Fixed Term Bonds generally offer the highest saving rates available, but these tend to be on shorter-term bonds, as they carry less risk to significant rate cuts leading to banks and building societies paying you over the odds in interest for long periods of time.
'What goes up must come down'
If you are extremely lucky - and do your research, you could open a fixed term bond before rates significantly fall, allowing you to earn well above savings rates offered to new and variable rate customers. If you cast your mind back to October last year, when the Base rate stood at 5%, you would be very happy with yourself if you were earning this kind of rate on your savings today, with the Base rate now at 0.5%.
A big element to a fixed term bond account is the "fixed term". You must be realistic with your finances and only go for this option if you can afford to lock your money away for some time. If you find that you need to withdraw any amount from your account, the bond will close and in most cases you will lose any interest to accumulated to date.
As well as the possibility of rates falling during the life of your bond, you could see the opposite effect, with rates significantly rising, leaving you locked in at a low rate. It is always a good idea to look at recent trends in Base rate changes to enable you to make an educated prediction on the direction it's headed. Many economists believe that rates will continue to fall during 2009, going as low as 0%.
Like any normal savings account, you have to pay tax on any interest accumulated, as this counts as income. The general tax rate is 20% for those earning less that £34,800 per annual, and 40% for anything above. There are other conditions to non-earners so check out the HM Revenue for more information.
Individual Savings Accounts
Individual Savings Accounts (ISA's) offer a tax free alternative to saving. Unlike normal savings accounts, the interest you earn on an ISA is not subject to tax deduction. Every year you are entitled to add up to £3,600 to your ISA, and the interest accumulated from your total balance will be tax free for life. You can deposit up to £3,600 between now and April 2009, which is when your allowance is renewed.
Like many savings accounts, ISA's offer a variety of options such as instant access, fixed rate, and base rate guarantees.
Unlike a fixed term account, most ISA's allow you to deposit as many times as you like throughout the year, as long as you stay within your £3,600 annual limit. It is better if you can afford to deposit the full amount at the beginning of the tax year, as this will allow you to earn the maximum possible interest, but for those that would rather have the flexibility to save as they earn, ISA's are great for making monthly deposits from a salary.
As with fixed term bonds, ISA's encourage savers to leave their money without making withdrawals. However, rather than deducting the interest earned to date and closing the account, ISA's simply give savers an annual deposit limit of £3,600, and once this has been reached, no more can be added, regardless of any withdrawals.
Because savers can get good returns from paying no tax on the interest they earn, ISA's tend to offer lower rates than Fixed Term Bonds.
Most ISA's are affected by cuts made to the Bank of England Base rate, so if you open an ISA when rates are high, you cannot guarantee they will stay high. Fixed rate ISA's allow you to fix in at a rate for a specified term, but this does carry some risk, as rates change, especially over a long term.
Always check out what kind of compensation scheme is used by your proposed bank or building society to ensure that your savings are covered in full. For more information on this, see Which4U's Top Ten Savings Tips.
The bottom line for all savings accounts is to ensure you are earning the highest possible returns on your money. Although ISA's offer tax free interest, you may find that the difference in rates offered against fixed term bonds will in fact leave you worse off. Before making a choice, compare the savings market for the best deals, and use your new found knowledge of these accounts to make an educated decision on where to invest your savings.
One last thing to remember is to always make sure (where possible) you keep the interest rates paid on your account above the rate of inflation (incuding tax deductions), as anything below would result in your money actually losing value. Inflation is used to measure the rate at which prices will increase, so if this level is higher than the interest you are earning, your money will be slowly eroding.
About the author:
UK Price Comparison website http://www.which4u.co.uk - Compare Credit Cards, Savings Accounts, ISAs, Bank Accounts, Fixed Rate Bonds, Loans, Mortgages.
With the Base rate now down to the lowest level ever recorded, rates on normal savings accounts have been slashed, which has limited our saving options.
The two obvious choices in today's savings market are Fixed Term Bonds, and Individual Savings Accounts (ISA). Although both types of savings accounts have their similarities, there are several advantages and disadvantages to each and it is this topic of discussion that this article will be focusing on.
Fixed Term Bonds
Fixed Term Bonds provide a rate that is fixed throughout the duration of the bond, giving savers a predictable income with no surprises. Once you have chosen a fixed term account, you are able to calculate exactly how much interest you will earn, minus the tax, to give you your end balance.
Most Fixed Term Bonds offer very high deposit limits, generally between £500,000 to £2 million, but some, such as ICICI, will let you invest as much as you like. You must deposit the full amount upon opening the account and cannot add to this once active.
There are no limits to how many fixed term bond accounts you can open within any one year, so unlike ISA accounts, if you decide to close your account for any reason, you can still invest any amount elsewhere at any time.
Fixed Term Bonds generally offer the highest saving rates available, but these tend to be on shorter-term bonds, as they carry less risk to significant rate cuts leading to banks and building societies paying you over the odds in interest for long periods of time.
'What goes up must come down'
If you are extremely lucky - and do your research, you could open a fixed term bond before rates significantly fall, allowing you to earn well above savings rates offered to new and variable rate customers. If you cast your mind back to October last year, when the Base rate stood at 5%, you would be very happy with yourself if you were earning this kind of rate on your savings today, with the Base rate now at 0.5%.
A big element to a fixed term bond account is the "fixed term". You must be realistic with your finances and only go for this option if you can afford to lock your money away for some time. If you find that you need to withdraw any amount from your account, the bond will close and in most cases you will lose any interest to accumulated to date.
As well as the possibility of rates falling during the life of your bond, you could see the opposite effect, with rates significantly rising, leaving you locked in at a low rate. It is always a good idea to look at recent trends in Base rate changes to enable you to make an educated prediction on the direction it's headed. Many economists believe that rates will continue to fall during 2009, going as low as 0%.
Like any normal savings account, you have to pay tax on any interest accumulated, as this counts as income. The general tax rate is 20% for those earning less that £34,800 per annual, and 40% for anything above. There are other conditions to non-earners so check out the HM Revenue for more information.
Individual Savings Accounts
Individual Savings Accounts (ISA's) offer a tax free alternative to saving. Unlike normal savings accounts, the interest you earn on an ISA is not subject to tax deduction. Every year you are entitled to add up to £3,600 to your ISA, and the interest accumulated from your total balance will be tax free for life. You can deposit up to £3,600 between now and April 2009, which is when your allowance is renewed.
Like many savings accounts, ISA's offer a variety of options such as instant access, fixed rate, and base rate guarantees.
Unlike a fixed term account, most ISA's allow you to deposit as many times as you like throughout the year, as long as you stay within your £3,600 annual limit. It is better if you can afford to deposit the full amount at the beginning of the tax year, as this will allow you to earn the maximum possible interest, but for those that would rather have the flexibility to save as they earn, ISA's are great for making monthly deposits from a salary.
As with fixed term bonds, ISA's encourage savers to leave their money without making withdrawals. However, rather than deducting the interest earned to date and closing the account, ISA's simply give savers an annual deposit limit of £3,600, and once this has been reached, no more can be added, regardless of any withdrawals.
Because savers can get good returns from paying no tax on the interest they earn, ISA's tend to offer lower rates than Fixed Term Bonds.
Most ISA's are affected by cuts made to the Bank of England Base rate, so if you open an ISA when rates are high, you cannot guarantee they will stay high. Fixed rate ISA's allow you to fix in at a rate for a specified term, but this does carry some risk, as rates change, especially over a long term.
Always check out what kind of compensation scheme is used by your proposed bank or building society to ensure that your savings are covered in full. For more information on this, see Which4U's Top Ten Savings Tips.
The bottom line for all savings accounts is to ensure you are earning the highest possible returns on your money. Although ISA's offer tax free interest, you may find that the difference in rates offered against fixed term bonds will in fact leave you worse off. Before making a choice, compare the savings market for the best deals, and use your new found knowledge of these accounts to make an educated decision on where to invest your savings.
One last thing to remember is to always make sure (where possible) you keep the interest rates paid on your account above the rate of inflation (incuding tax deductions), as anything below would result in your money actually losing value. Inflation is used to measure the rate at which prices will increase, so if this level is higher than the interest you are earning, your money will be slowly eroding.
About the author:
UK Price Comparison website http://www.which4u.co.uk - Compare Credit Cards, Savings Accounts, ISAs, Bank Accounts, Fixed Rate Bonds, Loans, Mortgages.
Wednesday, December 26, 2018
Defining Municipal Bonds
One of the main problems with traditional investing is that you seem
to have to either settle for a lower yield on local business investments
or give up the interactivity of knowing and influencing the factors
that affect your investment by purchasing shares in worldwide companies
or bonds created on a national level.
Luckily, there is an option that allows for a greater return than some local stocks, bonds, and other investments while offering a chance to make an investment in your own community. Municipal bonds can give you the best of both worlds in this regard, and can be a sound investment on top of that due to the fact that they are government bonds.
The information provided below should give you an initial feel of what municipal bonds and how they operate, helping you to decide whether or not a municipal bond investment is right for you.
What Municipal Bonds Are
A municipal bond is defined as a bond that is issued by a state, city, or other localized government which is used to pay for new construction or some other special project. What this means is that a local government issues a bond that individuals can purchase shares of in order to finance a project that exceeds the local government's budget for that sort of project. Like other bonds, the new municipal bond has a date of maturity and a rate at which the value of the shares increase.
Once the municipal bond reaches maturity, the investors can cash in their bond shares for their full value, the money for which being allocated as part of the issuing local government's budget. Investment in a municipal bond can be considered a type of loan, where the investors are lending money to the local government in order to pay for the project the bond was issued for and the interest paid upon the bond is the interest that is paid by the local government on the loan.
Why Municipal Bonds Are Issued
As mentioned above, municipal bonds are usually issued in order to cover the cost of new construction or other special projects that are being conducted by a local government. The actual type of project may vary, and may include surveys or statistical analysis, conservation or environmental projects, or even the building of new roads or attempts to improve industry, commercial property, and residential housing. Municipal bonds may also be issued as a method for making up temporary budget deficits or to fill other financial needs of the local government.
Investing in Municipal Bonds
Making an investment in municipal bonds is much like choosing to invest in other bonds, though they may be issued locally instead of being publicly traded on a large stock exchange. Often municipal bonds can be purchased at the city hall, capital building, or other hub of government for the issuing city or local government. In most cases, the investment opportunity will be listed in newspapers, tabloids, or other financial papers that cover local financial news, though in the case of larger cities that may be issuing municipal bonds the news might be released over a much larger area. Former investors in a particular locality's municipal bonds may be alerted when the bonds first are available for purchase, though not all local governments follow this practice.
About the author
John Mussi is the founder of Direct Online Loans who help homeowners find the best available loans via the www.directonlineloans.co.uk website.
Luckily, there is an option that allows for a greater return than some local stocks, bonds, and other investments while offering a chance to make an investment in your own community. Municipal bonds can give you the best of both worlds in this regard, and can be a sound investment on top of that due to the fact that they are government bonds.
The information provided below should give you an initial feel of what municipal bonds and how they operate, helping you to decide whether or not a municipal bond investment is right for you.
What Municipal Bonds Are
A municipal bond is defined as a bond that is issued by a state, city, or other localized government which is used to pay for new construction or some other special project. What this means is that a local government issues a bond that individuals can purchase shares of in order to finance a project that exceeds the local government's budget for that sort of project. Like other bonds, the new municipal bond has a date of maturity and a rate at which the value of the shares increase.
Once the municipal bond reaches maturity, the investors can cash in their bond shares for their full value, the money for which being allocated as part of the issuing local government's budget. Investment in a municipal bond can be considered a type of loan, where the investors are lending money to the local government in order to pay for the project the bond was issued for and the interest paid upon the bond is the interest that is paid by the local government on the loan.
Why Municipal Bonds Are Issued
As mentioned above, municipal bonds are usually issued in order to cover the cost of new construction or other special projects that are being conducted by a local government. The actual type of project may vary, and may include surveys or statistical analysis, conservation or environmental projects, or even the building of new roads or attempts to improve industry, commercial property, and residential housing. Municipal bonds may also be issued as a method for making up temporary budget deficits or to fill other financial needs of the local government.
Investing in Municipal Bonds
Making an investment in municipal bonds is much like choosing to invest in other bonds, though they may be issued locally instead of being publicly traded on a large stock exchange. Often municipal bonds can be purchased at the city hall, capital building, or other hub of government for the issuing city or local government. In most cases, the investment opportunity will be listed in newspapers, tabloids, or other financial papers that cover local financial news, though in the case of larger cities that may be issuing municipal bonds the news might be released over a much larger area. Former investors in a particular locality's municipal bonds may be alerted when the bonds first are available for purchase, though not all local governments follow this practice.
About the author
John Mussi is the founder of Direct Online Loans who help homeowners find the best available loans via the www.directonlineloans.co.uk website.
Monday, November 19, 2018
Deciding Whether Stocks or Bonds are Right for You
There are a vast number of investment opportunities available to
potential investors, but not all of them are right for all purposes. The
most common types of investments are stocks and bonds. Stocks are
shares of individual companies, while bonds are government-issued
investment funds. Both can be great for starting in the investing
market, but you should know a little about the difference between the
two before making your investment.
Stocks
Stocks can help balance out a bond-heavy portfolio by providing diversification
Stock dividends also receive more favorable tax treatment than bond payouts.
If you make the decision that stocks may be the place for you to put your investment dollars, you must now determine the primary purpose of your stock investment.
The two primary stock investment goals are income and growth. You can have a combination of the two in one stock investment, but the features are almost never equal. In other words, although growth and income may co-exist in a particular stock investment, the investment choice you make should take into account the primary strength of the stock.
Growth Stock vs. Income Stock
Growth stock is stock in a company that doesn't pay cash dividends, but instead reinvests its profits into the company. The idea behind this strategy is that the company will continue to grow and become more profitable, driving the stock price up.
Income stock is stock in well-established companies that do not need to reinvest their profits into their companies and therefore use their profits to pay dividends to stockholders. Income stock is often more expensive because the income stream and security of the investment is greater.
Mutual Funds
Many investors invest in the stock market through mutual funds. Mutual funds are professionally managed and are easier to diversify your investments in, which makes them less risky than investing in individual stocks. You still have to research what type of stock will best suit your goals, but the average investor finds it less stressful to invest in the stock market through this method.
Bonds
Bonds, though some consider them "safer" than stocks, still come with risks. Some bond funds offer enticing payouts but may take big chances to do so, including venturing into lower-quality and longer-duration credits; if your funds' bonds lose value, you could see your principal shrink even though you're pocketing a healthy yield. Checking a fund's quarterly losses can be an easy way to see whether you could stomach a given fund's short-term losses. There's nothing wrong with making room for some higher-yielding bond funds around the margins of your portfolio, but consider these income-heavy funds to be side items because of their greater potential for volatility.
And while paying for high-quality financial advice can be money well spent, think carefully before paying a sales charge for a bond fund. If you're paying a 3.75% load to buy a bond fund (and that's a pretty low load), you're surrendering most of your first year's income payments from the get-go.
Individual Bonds vs. Bond Funds
Many investors prefer to invest in individual bonds rather than bond funds. While that's a reasonable tack if you're buying Treasury securities or perhaps even extremely high-quality corporate bonds, it makes sense to opt for a professionally managed bond fund for every other type of fixed-income security. Not only will a mutual fund offer you much more diversification (and therefore lower risk) than you could obtain by buying individual bonds, but smaller investors who are buying and selling individual bonds are also at a big disadvantage when it comes to trading costs.
About the author
John Mussi is the founder of Direct Online Loans who help homeowners find the best available loans via the www.directonlineloans.co.uk website.
Stocks
Stocks can help balance out a bond-heavy portfolio by providing diversification
Stock dividends also receive more favorable tax treatment than bond payouts.
If you make the decision that stocks may be the place for you to put your investment dollars, you must now determine the primary purpose of your stock investment.
The two primary stock investment goals are income and growth. You can have a combination of the two in one stock investment, but the features are almost never equal. In other words, although growth and income may co-exist in a particular stock investment, the investment choice you make should take into account the primary strength of the stock.
Growth Stock vs. Income Stock
Growth stock is stock in a company that doesn't pay cash dividends, but instead reinvests its profits into the company. The idea behind this strategy is that the company will continue to grow and become more profitable, driving the stock price up.
Income stock is stock in well-established companies that do not need to reinvest their profits into their companies and therefore use their profits to pay dividends to stockholders. Income stock is often more expensive because the income stream and security of the investment is greater.
Mutual Funds
Many investors invest in the stock market through mutual funds. Mutual funds are professionally managed and are easier to diversify your investments in, which makes them less risky than investing in individual stocks. You still have to research what type of stock will best suit your goals, but the average investor finds it less stressful to invest in the stock market through this method.
Bonds
Bonds, though some consider them "safer" than stocks, still come with risks. Some bond funds offer enticing payouts but may take big chances to do so, including venturing into lower-quality and longer-duration credits; if your funds' bonds lose value, you could see your principal shrink even though you're pocketing a healthy yield. Checking a fund's quarterly losses can be an easy way to see whether you could stomach a given fund's short-term losses. There's nothing wrong with making room for some higher-yielding bond funds around the margins of your portfolio, but consider these income-heavy funds to be side items because of their greater potential for volatility.
And while paying for high-quality financial advice can be money well spent, think carefully before paying a sales charge for a bond fund. If you're paying a 3.75% load to buy a bond fund (and that's a pretty low load), you're surrendering most of your first year's income payments from the get-go.
Individual Bonds vs. Bond Funds
Many investors prefer to invest in individual bonds rather than bond funds. While that's a reasonable tack if you're buying Treasury securities or perhaps even extremely high-quality corporate bonds, it makes sense to opt for a professionally managed bond fund for every other type of fixed-income security. Not only will a mutual fund offer you much more diversification (and therefore lower risk) than you could obtain by buying individual bonds, but smaller investors who are buying and selling individual bonds are also at a big disadvantage when it comes to trading costs.
About the author
John Mussi is the founder of Direct Online Loans who help homeowners find the best available loans via the www.directonlineloans.co.uk website.
Saturday, October 13, 2018
Finding Low Cost Bonds
If you've been considering investing in bonds, then you probably know
that the best way to get the most out of bonds is to buy them early for
a low price. Unfortunately, it can sometimes be quite difficult to find
bonds early… and even when you do they're not always in the price range
that you're looking for.
Luckily, it is possible to find low cost bonds without spending all of your free time searching for them; it's simply a matter of knowing how to look, knowing what to look for, and knowing when to find a little bit of help in your search.
Below you'll find tips and information on how to maximize the effectiveness of your search and track down the low cost bonds that you're hoping to find.
Defining "Low Cost"
One of the first things that you should do when beginning your search for low cost bonds is to determine exactly what you consider a "low cost" bond to be. You should settle on somewhat of a fluid definition, enabling you to take the cost of the bond in context with the time remaining until maturity and the potential that the bond has for growth.
Make sure that any of the bonds that you might consider purchasing are well within your means to afford them, and be willing to consider at least a few bonds that are pricier than some of the others if they are potentially high-yielding bonds early in their lifespan.
Using the Internet to Enhance Your Search
When searching for your bonds, you should consult the financial sections of newspapers and other financial publications as well as leading financial news and trading websites online. Newspapers and print publications can give you an idea of what bonds are available for purchase and how much their value is as of publication, whereas the financial and trading websites can give you up to date information on the current costs of the bonds as well as their history and links to any related news.
This will help you to determine if the potential yield of the bond is worth the money that it will take for you to make your initial investment.
Search Smarter, Not Harder
As you continue your search, make sure that you don't forget to take advantage of some of the advanced features of leading market brokerage websites. Many modern sites enable you to do specific searches for bonds within a certain price range or that have a certain amount of time remaining until their maturity.
By utilizing these specialized search features, you can find bond investment opportunities that you might otherwise have overlooked… and because you can set the price range that you're searching in, you can be relatively certain that whatever results come up will be within the limits of your low cost parameters.
Seeking Professional Help
If you're still not finding the low cost bonds that you want, you might want to consider finding and consulting a market analyst to assist you. These analysts are experts in locating stocks and bonds with the best potential, and they can advise you on some of the best investments that you can make so that you'll be able to get the most out of your purchase.
Keep in mind that market analysts are paid for what they do, so you'll have to spend a little bit of money to retain their services… in general, though, the results that you get from hiring an analyst far outweigh their initial costs.
About the author
John Mussi is the founder of Direct Online Loans who help homeowners find the best available loans via the www.directonlineloans.co.uk website.
Luckily, it is possible to find low cost bonds without spending all of your free time searching for them; it's simply a matter of knowing how to look, knowing what to look for, and knowing when to find a little bit of help in your search.
Below you'll find tips and information on how to maximize the effectiveness of your search and track down the low cost bonds that you're hoping to find.
Defining "Low Cost"
One of the first things that you should do when beginning your search for low cost bonds is to determine exactly what you consider a "low cost" bond to be. You should settle on somewhat of a fluid definition, enabling you to take the cost of the bond in context with the time remaining until maturity and the potential that the bond has for growth.
Make sure that any of the bonds that you might consider purchasing are well within your means to afford them, and be willing to consider at least a few bonds that are pricier than some of the others if they are potentially high-yielding bonds early in their lifespan.
Using the Internet to Enhance Your Search
When searching for your bonds, you should consult the financial sections of newspapers and other financial publications as well as leading financial news and trading websites online. Newspapers and print publications can give you an idea of what bonds are available for purchase and how much their value is as of publication, whereas the financial and trading websites can give you up to date information on the current costs of the bonds as well as their history and links to any related news.
This will help you to determine if the potential yield of the bond is worth the money that it will take for you to make your initial investment.
Search Smarter, Not Harder
As you continue your search, make sure that you don't forget to take advantage of some of the advanced features of leading market brokerage websites. Many modern sites enable you to do specific searches for bonds within a certain price range or that have a certain amount of time remaining until their maturity.
By utilizing these specialized search features, you can find bond investment opportunities that you might otherwise have overlooked… and because you can set the price range that you're searching in, you can be relatively certain that whatever results come up will be within the limits of your low cost parameters.
Seeking Professional Help
If you're still not finding the low cost bonds that you want, you might want to consider finding and consulting a market analyst to assist you. These analysts are experts in locating stocks and bonds with the best potential, and they can advise you on some of the best investments that you can make so that you'll be able to get the most out of your purchase.
Keep in mind that market analysts are paid for what they do, so you'll have to spend a little bit of money to retain their services… in general, though, the results that you get from hiring an analyst far outweigh their initial costs.
About the author
John Mussi is the founder of Direct Online Loans who help homeowners find the best available loans via the www.directonlineloans.co.uk website.
Saturday, September 29, 2018
US Bonds Are Reduce There Importance In The Security Market
Investment in the debt market is provided a good return in comparison to
the other sector of the investment and also the liquidity of the debt
market is higher than the other sector.
Why the debt market is more preferred ,because the return on the debt market is good, liquidity of the return is maximum in comparison to other investment (In equity or some shares return allocated to the investors after payment to the debt lender and after all expenses ) .If there is any Break Even situation when there is no profit or no loss than the equity or the other share holder not getting any return for there investment but the debt bond holder will get there interest and the interest on the debt bound is much higher than the investment on share or deposit in any banks.
From the owner point of view also the debt bond is good as the interest on the debt bond is calculated on the profit before tax, and it's treated as expenses.
Debt bond will not create the problem of ownership change by the more issue of the debt bonds.
Govt. also issue debt bonds in the market to collect the money to fulfill the gap of Fiscal deficit (Deficit arise when the govt. invest more amount on the different development project but the revenue arise from tax or different means is less than the actual expenses)
Goverment Bonds first purchased by the nationalized banks or institution but in the present situation these bonds are purchased by the general public also .Govt. debt bonds are more secure return, interest rate on it is higher than general interest rate prevailing in the market, investment in the Govt. debt bonds is more secure than the other investment as this bonds are backing by the Govt.
As per the estimate the total debt bond market is $82.2 trillion US debt bonds are $31.2 trillion.
US is the larges economy in the world and it's also a bigger debtor too. After the second war influence of the US dollar arise in the whole world market and the dollar assume as valuable currency and the US Govt. bonds assume as the secure means of investment .
US dollar used to pay the petroleum to the Middle East courtiers , and these countries again invest this income to purchase the US security bonds gold bonds, that means the dollar again return to there home land. All Asian, Europen and African countries invest there reserve in the US bonds.
Now the question arises if the US is the largest economy in the world than why the US Govt. needs to collect funds by issuing the bonds in the market. US is the big economy but on the other hand US is the only single larger importer in the world .from the second world war to till mid 90s the development of the whole world economy depends on the US export, US import the 1/3 part of the total import of consumer goods, use of the petroleum products, electricity, consumer durable goods highest in the US, and for this the US import increases and the US govt. has only two option first devalue the dollar or second collect the money by issuing t5he bonds in the open market .First one is dangerous situation because the devaluation not effect the US only it effect the whole worlds economy as the US dollar used as the global currency for the exchange therefore every country maintain the Dollar reserve and the devaluation reduce the market value of their reserve.
After 90s the scenario change little bit the Middle East countries now not invest there whole reserve on the US bonds they now invest on the Euro bonds and the Bonds issued by the Indian and China .European and other countries import now not depend on the US economy, the emerging economy in the world China, India, Brazil and Russia now consume the large part of the world import.
It doesn't mean the US dollar importance totally fade up from world economy but
Yes the US bonds importance reduce in the economic world.
About the author:
Ronand Smith is a financial post writer written different post for the financial sites; visit his site to get the different finance related information.
Why the debt market is more preferred ,because the return on the debt market is good, liquidity of the return is maximum in comparison to other investment (In equity or some shares return allocated to the investors after payment to the debt lender and after all expenses ) .If there is any Break Even situation when there is no profit or no loss than the equity or the other share holder not getting any return for there investment but the debt bond holder will get there interest and the interest on the debt bound is much higher than the investment on share or deposit in any banks.
From the owner point of view also the debt bond is good as the interest on the debt bond is calculated on the profit before tax, and it's treated as expenses.
Debt bond will not create the problem of ownership change by the more issue of the debt bonds.
Govt. also issue debt bonds in the market to collect the money to fulfill the gap of Fiscal deficit (Deficit arise when the govt. invest more amount on the different development project but the revenue arise from tax or different means is less than the actual expenses)
Goverment Bonds first purchased by the nationalized banks or institution but in the present situation these bonds are purchased by the general public also .Govt. debt bonds are more secure return, interest rate on it is higher than general interest rate prevailing in the market, investment in the Govt. debt bonds is more secure than the other investment as this bonds are backing by the Govt.
As per the estimate the total debt bond market is $82.2 trillion US debt bonds are $31.2 trillion.
US is the larges economy in the world and it's also a bigger debtor too. After the second war influence of the US dollar arise in the whole world market and the dollar assume as valuable currency and the US Govt. bonds assume as the secure means of investment .
US dollar used to pay the petroleum to the Middle East courtiers , and these countries again invest this income to purchase the US security bonds gold bonds, that means the dollar again return to there home land. All Asian, Europen and African countries invest there reserve in the US bonds.
Now the question arises if the US is the largest economy in the world than why the US Govt. needs to collect funds by issuing the bonds in the market. US is the big economy but on the other hand US is the only single larger importer in the world .from the second world war to till mid 90s the development of the whole world economy depends on the US export, US import the 1/3 part of the total import of consumer goods, use of the petroleum products, electricity, consumer durable goods highest in the US, and for this the US import increases and the US govt. has only two option first devalue the dollar or second collect the money by issuing t5he bonds in the open market .First one is dangerous situation because the devaluation not effect the US only it effect the whole worlds economy as the US dollar used as the global currency for the exchange therefore every country maintain the Dollar reserve and the devaluation reduce the market value of their reserve.
After 90s the scenario change little bit the Middle East countries now not invest there whole reserve on the US bonds they now invest on the Euro bonds and the Bonds issued by the Indian and China .European and other countries import now not depend on the US economy, the emerging economy in the world China, India, Brazil and Russia now consume the large part of the world import.
It doesn't mean the US dollar importance totally fade up from world economy but
Yes the US bonds importance reduce in the economic world.
About the author:
Ronand Smith is a financial post writer written different post for the financial sites; visit his site to get the different finance related information.
Tuesday, September 11, 2018
Bonds and Interest
Though bonds are one of the more common investment tools that are
traded on the securities market today, there are many people who aren't
sure exactly how it is that bonds work. If you've found yourself
wondering exactly how bonds are created, how you can buy them or make
money with them, and whether investing in bonds is right for you and
your financial needs, then this article is for you.
The information presented below will give you a better insight into what bonds are and how you can work with them, so that you can decide whether or not they are the right investment for you.
The Creation of Bonds
Unlike stocks, which are portions of company ownership that is sold on the securities market, bonds are created by companies and branches of government. Ownership of bonds is very much like owning a certificate of deposit, which makes sense because bonds operate in a very similar manner. When bonds are created and released for sale to the public, a date of maturity is established… the bond will continue to collect interest until that date of maturity, at which point the full value of the bond will be payable to the bond owners.
Buying Bonds
Bonds can be purchased in much the same manner that shares of stock or other securities are. Operating through an investment broker or online brokerage company, an individual can purchase individual shares of a specific bond at any point before that bond's maturity. Ideally, you want to purchase shares of a bond early in the bond's lifespan… in other words, you want to buy it soon after its creation so that you won't have to pay as much for it and the final value of it will result in higher profits for you.
Interest Rates
The rates that specific bonds pay can vary depending upon the term of the bond, the company or government office that created the bond, and the prevailing interest rates at the time that the bond was created. Though many people look for bonds with high rates, it can also be profitable to purchase a bond with a lower rate that has a longer term than some of the high-rate ones.
Maturity
When bonds are created, the date that they reach maturity is set. Often, this will be between six and twelve months, though the actual time that it takes the bond to reach maturity depends upon the creator of the bond. Before investing in bonds, it's important that you take the time to research the bonds that you're considering so that you can find the ones that have the longest amount of time remaining until their maturity so that you can make the largest profit that you can from your investment.
Keeping Bonds in Your Portfolio
Since bonds increase in value as time goes by, the longer you own shares in a specific bond then the more profit you're likely to gain from it. You should keep in mind, though, that the older a bond gets the closer it's getting to its maturity, so it's important to keep an eye out for new bonds to invest in so that your investment portfolio is constantly growing.
Though it may seem like a lot of investments to keep track of at first, you need to remember that as the bonds reach maturity they will be paid out to you and will no longer be making a profit.
About the author
John Mussi is the founder of Direct Online Loans who help homeowners find the best available loans via the www.directonlineloans.co.uk website.
The information presented below will give you a better insight into what bonds are and how you can work with them, so that you can decide whether or not they are the right investment for you.
The Creation of Bonds
Unlike stocks, which are portions of company ownership that is sold on the securities market, bonds are created by companies and branches of government. Ownership of bonds is very much like owning a certificate of deposit, which makes sense because bonds operate in a very similar manner. When bonds are created and released for sale to the public, a date of maturity is established… the bond will continue to collect interest until that date of maturity, at which point the full value of the bond will be payable to the bond owners.
Buying Bonds
Bonds can be purchased in much the same manner that shares of stock or other securities are. Operating through an investment broker or online brokerage company, an individual can purchase individual shares of a specific bond at any point before that bond's maturity. Ideally, you want to purchase shares of a bond early in the bond's lifespan… in other words, you want to buy it soon after its creation so that you won't have to pay as much for it and the final value of it will result in higher profits for you.
Interest Rates
The rates that specific bonds pay can vary depending upon the term of the bond, the company or government office that created the bond, and the prevailing interest rates at the time that the bond was created. Though many people look for bonds with high rates, it can also be profitable to purchase a bond with a lower rate that has a longer term than some of the high-rate ones.
Maturity
When bonds are created, the date that they reach maturity is set. Often, this will be between six and twelve months, though the actual time that it takes the bond to reach maturity depends upon the creator of the bond. Before investing in bonds, it's important that you take the time to research the bonds that you're considering so that you can find the ones that have the longest amount of time remaining until their maturity so that you can make the largest profit that you can from your investment.
Keeping Bonds in Your Portfolio
Since bonds increase in value as time goes by, the longer you own shares in a specific bond then the more profit you're likely to gain from it. You should keep in mind, though, that the older a bond gets the closer it's getting to its maturity, so it's important to keep an eye out for new bonds to invest in so that your investment portfolio is constantly growing.
Though it may seem like a lot of investments to keep track of at first, you need to remember that as the bonds reach maturity they will be paid out to you and will no longer be making a profit.
About the author
John Mussi is the founder of Direct Online Loans who help homeowners find the best available loans via the www.directonlineloans.co.uk website.
Thursday, August 16, 2018
Are U.S. Savings Bonds Still Relevant?
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.
http://www.1source4stocks.com/
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.
http://www.1source4stocks.com/
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/
Tuesday, July 31, 2018
National Savings - The Right Option For You?
When we deal with new clients, we encounter Premium Bonds frequently, but it's not very often that we see the many other products offered by National Savings and Investments (NS&I). Some NS&I returns are currently looking quite attractive, and so it is worth perhaps looking at two such investments, Premium Bonds and Savings Certificates.
When we deal with new clients, we encounter Premium Bonds frequently, but it's not very often that we see the many other products offered by National Savings and Investments (NS&I).
Some NS&I returns are currently looking quite attractive, and so it is worth perhaps looking at two such investments, Premium Bonds and Savings Certificates.
The purpose for NS&I offering savings accounts and bonds is to raise money for the government. The various offerings range from tax free to taxable, and of course are safe havens for your cash as they are backed by the UK Government.
Around a quarter of all the money invested in NS&I is held in Premium Bonds. Of course, strictly speaking, they are not investments as they are based not on earning interest but effectively a lottery in the form of a monthly prize draw.
Of course this means that you may be lucky, or not. The chance of you winning equates to a rate of 3.8% tax free.
But you are only risking the interest not the capital.
For a higher rate taxpayer assuming income tax at 40%, this is an equivalent rate of 6.33% gross.
Now let's look at Savings Certificates.
One of the problems for higher rate taxpayers is having a large chunk of their gains taxed at 40%. One of the major benefits of Savings Certificates is that they are tax free.
The fixed rate Certificate, for example the 2 year option, pays 3.95%. This comes out at 6.58% for a higher rate tax payer and 4.94% for a basic rate payer. There is also a 5 year option, which is currently paying 3.85%.
Turning to index linked certificates, the picture looks even more attractive. Due to increasing inflation, judged for these purposes to be 4.5%, the 3 year issue returns 1.35% above this. This gives a net return of 5.85% p.a. and a gross equivalent for a higher rate taxpayer of 9.75%! The rate is also the same for the 5 year product.
You can invest from £100 to £15,000 per issue, with no limit on reinvesting matured Certificates.
You can learn more about NS&I at nsandi.com
The Key Considerations:
Ensure that you take into account all the rates and products out there, particularly if you pay higher rate tax. NS&I could be ideal for yous, especially if you are in a phase of your life where you don't need to take any risk with your capital.
Now could be a good time to review all your cash and bond based investments.
ABOUT THE AUTHOR
Ray Prince is an Independent Financial Planner with Rutherford Wilkinson plc, and helps UK Resident Doctors and Dentists get the best deals on mortgages, protection and investments, as well as helping them achieve their financial objectives. Click here for Financial Advice for UK Doctors and Dentists and to get your free retirement guide, How To Avoid The 7 Most Common Retirement Planning Mistakes. Rutherford Wilkinson plc is authorised and regulated by the Financial Services Authority. http://www.medicaldentalfs.com/
When we deal with new clients, we encounter Premium Bonds frequently, but it's not very often that we see the many other products offered by National Savings and Investments (NS&I).
Some NS&I returns are currently looking quite attractive, and so it is worth perhaps looking at two such investments, Premium Bonds and Savings Certificates.
The purpose for NS&I offering savings accounts and bonds is to raise money for the government. The various offerings range from tax free to taxable, and of course are safe havens for your cash as they are backed by the UK Government.
Around a quarter of all the money invested in NS&I is held in Premium Bonds. Of course, strictly speaking, they are not investments as they are based not on earning interest but effectively a lottery in the form of a monthly prize draw.
Of course this means that you may be lucky, or not. The chance of you winning equates to a rate of 3.8% tax free.
But you are only risking the interest not the capital.
For a higher rate taxpayer assuming income tax at 40%, this is an equivalent rate of 6.33% gross.
Now let's look at Savings Certificates.
One of the problems for higher rate taxpayers is having a large chunk of their gains taxed at 40%. One of the major benefits of Savings Certificates is that they are tax free.
The fixed rate Certificate, for example the 2 year option, pays 3.95%. This comes out at 6.58% for a higher rate tax payer and 4.94% for a basic rate payer. There is also a 5 year option, which is currently paying 3.85%.
Turning to index linked certificates, the picture looks even more attractive. Due to increasing inflation, judged for these purposes to be 4.5%, the 3 year issue returns 1.35% above this. This gives a net return of 5.85% p.a. and a gross equivalent for a higher rate taxpayer of 9.75%! The rate is also the same for the 5 year product.
You can invest from £100 to £15,000 per issue, with no limit on reinvesting matured Certificates.
You can learn more about NS&I at nsandi.com
The Key Considerations:
Ensure that you take into account all the rates and products out there, particularly if you pay higher rate tax. NS&I could be ideal for yous, especially if you are in a phase of your life where you don't need to take any risk with your capital.
Now could be a good time to review all your cash and bond based investments.
ABOUT THE AUTHOR
Ray Prince is an Independent Financial Planner with Rutherford Wilkinson plc, and helps UK Resident Doctors and Dentists get the best deals on mortgages, protection and investments, as well as helping them achieve their financial objectives. Click here for Financial Advice for UK Doctors and Dentists and to get your free retirement guide, How To Avoid The 7 Most Common Retirement Planning Mistakes. Rutherford Wilkinson plc is authorised and regulated by the Financial Services Authority. http://www.medicaldentalfs.com/
Monday, July 30, 2018
Are You Missing The Point Of Bond Investing?
If you take a look at any successful portfolio, you will see a mix of stocks and bonds. While perhaps not as sexy as their equity counterparts, the value and importance of bonds is often overlooked by the rags to riches or in many cases, the riches back to rags story of stocks.
In a nutshell, bond investing involves lending money to a corporation, for a fixed term, and getting a fixed rate of return. This return on your investment is called the coupon rate. The key is in knowing how much of your portfolio should be invested in bonds and how much should be invested in the stock market.
Each bond is rated by their risks, and the reward is provided accordingly. Too bad stocks arent rated the same way! This provides a unique advantage over stocks. Also, bonds have a fixed term (2 years, 5 years and 10 years are common terms), at which time, you will get your initial investment back. Another great advantage of investing in bonds is that you will be paid a steady income equal to the return rate. For example, if you were to invest $100 000 in a bond that has a coupon rate of 4% each year, you will receive $4 000 worth of interest payments. During the duration of the term, you get a steady income and you get back your initial investment at the end of it.
Sounds simple, right? Here's where it gets a bit more complicated, but, more profitable. The key is in establishing what is the best strategy when it comes to investing in bonds. The answer of course, is it depends! What types of bonds are you looking at buying? Short term (which are less than 5 years in length of term) usually have a low coupon rate, however, your investment isn't tied up for a longer duration.
This may prove helpful if there is a chance that you may need access to your funds in the case of an emergency, as odds are, you will have a bond maturing around the time you'll need it most. Medium bonds can tie up your money for 5-10 years, while long term bonds can enjoy a term of 10-30 years.
The coupon rate will also vary depending on the credit worthiness. A lower credit rating often means a higher coupon rate (to match the higher risk involved), while a high credit rating is rewarded with a lower coupon rate (and less volatility and risk).
While the coupon rate is the most understand concept in bond investing, its not necessarily where all the money is made. Remember, people buy and sell bonds well before their maturity date. As such, when the interest rate moves lower, the price of an existing bond moves higher, thanks to its higher rate of return than a newer bond would provide. On the flip side, if interest rates move higher, the bond price moves lower, simply because new bonds will now provide a higher rate of return than your existing ones. If you make the call on the direction of interest rates correctly, you'll find yourself in the money by a few percentage points. That can make a huge difference in your portfolio.
Finally, there's the yield of the bond, which is a bit more involved, but simple to calculate. The yield rate is the ratio of the annual return of the coupon rate divided by the current purchase price of the bond. For example, that $100 000 bond with an annual payout of $3 500 has a yield of 3.5% if it's bought at $100 000. If it were purchased at $90 000 (due to an increase in interest rates), it would still return $3 500 per year, and would have a yield of $3 500/$90 000 = 3.8%. Just like the purchase price varies inversely with the interest rate, so does the yield.
By: Christopher Smith
ABOUT THE AUTHOR
Want to improve your stock market returns? Get tips on penny stocks, investing in bonds and what the buzz about the mutual fund store at 1source4stocks.
In a nutshell, bond investing involves lending money to a corporation, for a fixed term, and getting a fixed rate of return. This return on your investment is called the coupon rate. The key is in knowing how much of your portfolio should be invested in bonds and how much should be invested in the stock market.
Each bond is rated by their risks, and the reward is provided accordingly. Too bad stocks arent rated the same way! This provides a unique advantage over stocks. Also, bonds have a fixed term (2 years, 5 years and 10 years are common terms), at which time, you will get your initial investment back. Another great advantage of investing in bonds is that you will be paid a steady income equal to the return rate. For example, if you were to invest $100 000 in a bond that has a coupon rate of 4% each year, you will receive $4 000 worth of interest payments. During the duration of the term, you get a steady income and you get back your initial investment at the end of it.
Sounds simple, right? Here's where it gets a bit more complicated, but, more profitable. The key is in establishing what is the best strategy when it comes to investing in bonds. The answer of course, is it depends! What types of bonds are you looking at buying? Short term (which are less than 5 years in length of term) usually have a low coupon rate, however, your investment isn't tied up for a longer duration.
This may prove helpful if there is a chance that you may need access to your funds in the case of an emergency, as odds are, you will have a bond maturing around the time you'll need it most. Medium bonds can tie up your money for 5-10 years, while long term bonds can enjoy a term of 10-30 years.
The coupon rate will also vary depending on the credit worthiness. A lower credit rating often means a higher coupon rate (to match the higher risk involved), while a high credit rating is rewarded with a lower coupon rate (and less volatility and risk).
While the coupon rate is the most understand concept in bond investing, its not necessarily where all the money is made. Remember, people buy and sell bonds well before their maturity date. As such, when the interest rate moves lower, the price of an existing bond moves higher, thanks to its higher rate of return than a newer bond would provide. On the flip side, if interest rates move higher, the bond price moves lower, simply because new bonds will now provide a higher rate of return than your existing ones. If you make the call on the direction of interest rates correctly, you'll find yourself in the money by a few percentage points. That can make a huge difference in your portfolio.
Finally, there's the yield of the bond, which is a bit more involved, but simple to calculate. The yield rate is the ratio of the annual return of the coupon rate divided by the current purchase price of the bond. For example, that $100 000 bond with an annual payout of $3 500 has a yield of 3.5% if it's bought at $100 000. If it were purchased at $90 000 (due to an increase in interest rates), it would still return $3 500 per year, and would have a yield of $3 500/$90 000 = 3.8%. Just like the purchase price varies inversely with the interest rate, so does the yield.
By: Christopher Smith
ABOUT THE AUTHOR
Want to improve your stock market returns? Get tips on penny stocks, investing in bonds and what the buzz about the mutual fund store at 1source4stocks.
Sunday, July 29, 2018
All About Bonds
In finance, a bond is some sort of a debt security, where an authorized issuer owes the holders a debt and, depending on the legal terms of the bond, is forced to pay interest (the coupon) and/or to repay the main value at a later date, called maturity. A bond is simply a formal contract to repay borrowed money with interest at constant intervals.
Thus a bond is similar to a loan: the issuer is the borrower (debtor), the holder is the lender (creditor), and the coupon is the form of interest. Bonds give the borrower external funds to finance long-term investments, or, in the case of government bonds, to finance running expenses. Certificates of deposit (CDs) or commercial paper are considered to be instruments of money market not bonds. Bonds must be paid back at constant intervals over a period of time.
Bonds and stocks are both securities, but the main difference between the two is that stockholders have an equity share in the company (i.e., they are owners), whereas bondholders have a creditor share in the company (i.e., they are lenders). Another difference is that bonds usually have a defined maturity, after which the bond is exchanged, whereas stocks may be stay indefinite. An exception is a consol bond, which is a perpetuity (i.e., bond with no maturity(
Issuing bonds
Bonds are created by official authorities, credit institutions, companies and supranational institutions in the primary markets. The most common process of creating bonds is through underwriting, where one or more securities firms or banks, forming a syndicate, buy an entire lot of bonds from an issuer and re-sell them to investors. The security firm takes the risk of probable failure in selling on the issue to end investors. On the other side government bonds are typically auctioned. In reality, the current financial crisis tested the willingness of the securities firms to actually perform underwriting. Bookrunners arrange Primary issuance, so they arrange the bond issue, have the direct contact with investors and act as advisors to the bond issuer in terms of timing and price of the bond issue. The bookrunners ability to underwrite must be discussed prior to opening books on a bond issue as there may be limited desire to do so.
Bond indices
Many bond indices exist in order to manage portfolios and measure performance, just like the S&P 500 or Russell Indexes for stocks. The most famous American benchmarks are the (ex) Lehman Aggregate, Citigroup BIG and Merrill Lynch Domestic Master. The major amount of indices are parts of families of broader indices that are used to measure global bond portfolios, or may be further sub categorized by maturity and/or sector for managing specialized portfolios.
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/
Thus a bond is similar to a loan: the issuer is the borrower (debtor), the holder is the lender (creditor), and the coupon is the form of interest. Bonds give the borrower external funds to finance long-term investments, or, in the case of government bonds, to finance running expenses. Certificates of deposit (CDs) or commercial paper are considered to be instruments of money market not bonds. Bonds must be paid back at constant intervals over a period of time.
Bonds and stocks are both securities, but the main difference between the two is that stockholders have an equity share in the company (i.e., they are owners), whereas bondholders have a creditor share in the company (i.e., they are lenders). Another difference is that bonds usually have a defined maturity, after which the bond is exchanged, whereas stocks may be stay indefinite. An exception is a consol bond, which is a perpetuity (i.e., bond with no maturity(
Issuing bonds
Bonds are created by official authorities, credit institutions, companies and supranational institutions in the primary markets. The most common process of creating bonds is through underwriting, where one or more securities firms or banks, forming a syndicate, buy an entire lot of bonds from an issuer and re-sell them to investors. The security firm takes the risk of probable failure in selling on the issue to end investors. On the other side government bonds are typically auctioned. In reality, the current financial crisis tested the willingness of the securities firms to actually perform underwriting. Bookrunners arrange Primary issuance, so they arrange the bond issue, have the direct contact with investors and act as advisors to the bond issuer in terms of timing and price of the bond issue. The bookrunners ability to underwrite must be discussed prior to opening books on a bond issue as there may be limited desire to do so.
Bond indices
Many bond indices exist in order to manage portfolios and measure performance, just like the S&P 500 or Russell Indexes for stocks. The most famous American benchmarks are the (ex) Lehman Aggregate, Citigroup BIG and Merrill Lynch Domestic Master. The major amount of indices are parts of families of broader indices that are used to measure global bond portfolios, or may be further sub categorized by maturity and/or sector for managing specialized portfolios.
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/
Saturday, July 28, 2018
Private Bond Activity
How to use private bonds to your advantage, as well as little known facts about private bonds and tax credit properties.
Private Bond Activity Appraisals
Private bond activity appraisals are prepared for apartment complexes in the Low Income Tax Housing Tax Credit program which are obtaining private bond financing. The owners of these apartment projects receive a lower level of tax credits (versus traditional Low Income Housing Tax Credit apartment complexes). However, they receive lower cost financing (since the bonds are not subject to federal income tax).
Private bond activity apartment complexes are approved subject to complying with a series of inflexible rules and are contingent on tax credits being available. Identifying sites for which private bond activity apartment complexes are financially feasible is difficult.
Private bond activity complexes are subject to approval by both the state housing agency and bond issuer.
Appraisals for private bond activity apartment complexes vary in several regards from appraisal for conventional apartments. The value is subject to a land use restriction agreement (LURA). Further, there are typically several definitions of market value (as completed, as stabilized and as though LURA does not apply).
O’Connor & Associates is the largest independent appraisal firm in the southwestern United States and has over 40 full-time staff members engaged full-time in valuation and market study assignments. Their expertise includes private bond activity appraisals, feasibility studies, valuing real estate, business personal property, business enterprise valuation, purchase price allocation for business, valuation for property tax assignments, partial interest valuation, estate tax valuation, expert witness testimony and valuation for condemnation. They have performed hundreds of feasibility studies.
To obtain a quote or further information on private bond activity appraisals, contact George Thomas or Craig Young at 713-686-9955 or fill out our online form.
ABOUT THE AUTHOR
O'Connor & Associates is a national provider of commercial property real estate consulting services including federal tax reduction, income tax, business valuation, tax deduction, property appraisal, & lease audits.Our services benefit owners of all commercial property types including multi-family housing, retail stores, hospitals, hotels, industrial properties, manufacturing facilities, medical offices, commercial offices, restaurants, self-storage units, shopping malls, shopping plazas & warehouse/distribution centers.
Private Bond Activity Appraisals
Private bond activity appraisals are prepared for apartment complexes in the Low Income Tax Housing Tax Credit program which are obtaining private bond financing. The owners of these apartment projects receive a lower level of tax credits (versus traditional Low Income Housing Tax Credit apartment complexes). However, they receive lower cost financing (since the bonds are not subject to federal income tax).
Private bond activity apartment complexes are approved subject to complying with a series of inflexible rules and are contingent on tax credits being available. Identifying sites for which private bond activity apartment complexes are financially feasible is difficult.
Private bond activity complexes are subject to approval by both the state housing agency and bond issuer.
Appraisals for private bond activity apartment complexes vary in several regards from appraisal for conventional apartments. The value is subject to a land use restriction agreement (LURA). Further, there are typically several definitions of market value (as completed, as stabilized and as though LURA does not apply).
O’Connor & Associates is the largest independent appraisal firm in the southwestern United States and has over 40 full-time staff members engaged full-time in valuation and market study assignments. Their expertise includes private bond activity appraisals, feasibility studies, valuing real estate, business personal property, business enterprise valuation, purchase price allocation for business, valuation for property tax assignments, partial interest valuation, estate tax valuation, expert witness testimony and valuation for condemnation. They have performed hundreds of feasibility studies.
To obtain a quote or further information on private bond activity appraisals, contact George Thomas or Craig Young at 713-686-9955 or fill out our online form.
ABOUT THE AUTHOR
O'Connor & Associates is a national provider of commercial property real estate consulting services including federal tax reduction, income tax, business valuation, tax deduction, property appraisal, & lease audits.Our services benefit owners of all commercial property types including multi-family housing, retail stores, hospitals, hotels, industrial properties, manufacturing facilities, medical offices, commercial offices, restaurants, self-storage units, shopping malls, shopping plazas & warehouse/distribution centers.
Friday, July 27, 2018
When Is It Safe To Get Back Into Bonds?
Investors who are wondering when it's safe to get back into bonds have one thing going for them: They recognize a real risk that many don't.
But the question still heads down the wrong path. Generalizations about the timing of getting into and out of asset classes are rarely accurate, and they distract from the more productive goal of focusing on what you can do to maintain your long-term financial health. The answers to several other questions about bonds, however, may help in determining an appropriate investment strategy to meet your goals.
Before we talk about the state of the bond market, it is important to discuss what a bond is and what it does. Although there are some technical differences, it is easiest to think of a bond as a tradable loan. Bonds are obligations of the issuer, acting as a borrower, to repay a certain sum with interest to the lender, or bondholder. Bonds are generally issued with a $1,000 "par" or face value, and the bond's stated interest rate is the total annual interest payments divided by that initial value of the bond. If a bond pays $50 of interest per year on an initial $1,000 investment, the interest rate will be stated as 5 percent.
Simple enough. But once the bonds are issued, the current price or "principal" value, of the bond may change because of a variety of factors. Among these are the overall level of interest rates available in the market, the issuer's perceived creditworthiness, the expected inflation rate, the amount of time left until the bond's maturity, investors' general appetite for risk, and supply and demand for the particular bond.
Though bonds are typically perceived as safer investments than stocks, the reality is slightly more complex. Once bonds trade on the open market, an individual company's bonds will not always be safer than its stocks. Both stock and bond prices fluctuate; the relative risk of an investment is largely a factor of its price. If all types of markets were completely efficient, it is true that a bond would always be safer than a stock. In reality, this is not always the case. It's also entirely possible that a stock of one company may be safer than a bond issued by a different company.
The reason a bond investment is perceived as safer than a stock investment is that bondholders are ranked more highly than shareholders in the capital structure of an organization. Bondholders are therefore more likely to be repaid in the event of a bankruptcy or default. Since investors want to be compensated with added return for taking on additional risk, stocks should be priced to provide higher returns than bonds in accordance with this higher risk. As a result, the long-term expected returns in the stock market are generally higher than the expected return of bonds. Historical data have borne out this theory, and few dispute it. Given this information, an investor looking to maximize his or her returns might think that bonds are only for the faint of heart.
Why Invest In Bonds?
Even an aggressive investor should pay some attention to bonds. One benefit of bonds is that they have a low or negative correlation with stocks. This means that when stocks have a bad year, bonds as a whole do well; they "zag" when stocks "zig." In every calendar year since 1977 in which large U.S. stocks have had negative returns, the bond market has had positive returns of at least 3 percent.
Bonds also have a higher likelihood of preserving the dollar value of an investment over short periods of time, since the annual return on stocks is highly volatile. However, over longer periods of 10 years or more, well-diversified stocks virtually guarantee investors a positive return. If an investor will need to withdraw money from his or her portfolio within the next five years, conservative bonds are a sensible option.
Even if you are not going to withdraw from your portfolio, conservative bonds provide an option on the future. In a downturn, you can redeploy the preserved capital into assets that have effectively gone on sale during the market decline. Bonds in a portfolio reduce volatility, cover short-term cash needs and preserve "dry powder" to deploy opportunistically in a market downturn. These are all sensible uses. On the other hand, over investing in bonds can pose more risks than investors may realize.
What Are The Risks Of Bonds?
Imagine bonds' current values and interest rates sitting on opposite sides of a seesaw. When interest rates go up, bond prices go down. The magnitude of the decrease in bond values increases as the bond's duration increases. For every 1 percent change in interest rates, a bond's value can be expected to change in the opposite direction by a percentage equal to the bond's duration. For example, if the market interest rate on a bond with a two-year duration increases to 1.3 percent from 0.3 percent, the bonds should decrease in value by 2 percent. If rates normalize to the historical average of 4.2 percent, the two-year bond should decrease in value by about 7.8 percent.
While such negative returns are not appealing, they are not unmanageable, either. However, longer-term bonds pose the true risk. If interest rates on a 10-year duration bond increased by the same 4 percent, the current value of the bond would decrease by 40 percent. Interest rates are still not far from historic lows, but at some point they are bound to normalize. This makes long-term bonds in particular very risky at this time. Bonds are often referred to as fixed-income investments, but it is important to recognize that they provide a fixed cash flow, not a fixed return. Some bonds may now provide nearly return-free risk.
Another major risk of over investing in bonds is that, although they work well to satisfy short-term cash needs, they can destroy wealth in the long term. You can guarantee yourself close to a 3 percent annual return by buying a 10-year Treasury note today. The downside is that if inflation is 4 percent over the same time period, you are guaranteed to lose about 10 percent of your purchasing power over that time, even though the dollar balance on your account will grow. If inflation is at 6 percent, your purchasing power will decrease by more than 25 percent. Conservative bonds have historically struggled to keep up with inflation, and today's low interest rates mean that most bond investments will likely lose the race. Having a traditionally "conservative" asset allocation of 100 percent bonds would actually be riskier than a more balanced portfolio.
The Federal Reserve's decision to maintain low interest rates for an extended period was meant to spur investment and the broader economy, but it comes at the expense of conservative investors. In the face of low interest rates, many risk-averse investors have moved to riskier areas of the bond market in search of higher incomes, rather than changing their overall investment approaches in a more disciplined, balanced way.
Risk in fixed income comes in a few primary varieties: credit risk, interest rate risk, currency risk and liquidity risk. Some investors have shifted their investments to bonds from lower-quality issuers to earn more income. This strategy can backfire if the company's ability to meet its obligations decreases. Longer-term bonds also pay higher incomes than their shorter-term counterparts, but will lose substantial value if interest rates or inflation rise. Foreign bonds might have higher interest rates than domestic bonds, but the return will ultimately depend on both the interest rates and the changes in currency exchange rates, which are hard to predict. Bondholders might also be able to generate more income by finding an obscure bond issuer. However, if the bond owner needs to sell the bond before its maturity, he or she may need to do so at a large discount if the bonds are thinly traded.
The growing list of municipalities that have defaulted on bonds serves as a reminder that issuer-specific risk should be a real concern for all bond investors. Even companies with good credit ratings experience unexpected events that impair their ability to repay.
Taking on more risk in a bond portfolio is not inherently a poor strategy. The problem with it today is that the price of riskier fixed-income investments has been driven up by so many investors pursuing the same strategy. Given how many investors are hungry for increased income, taking on additional risk in bonds is likely not worth the increased return.
Given The Risks, What Do We Suggest?
We recommend that investors focus on maximizing the total return of their portfolios over the long term, rather than trying to maximize current income in today's low interest rate environment. We have been wary of the risk of a bond market collapse because of rising interest rates for a long time, and have positioned our clients' portfolios accordingly. But that does not mean avoiding fixed-income investments altogether.
While it may be counter intuitive to think that adding equities can actually decrease risk, based on historical returns, adding some equity exposure to a bond portfolio provides the proverbial free lunch - higher return with less risk. For individuals and families who are investing for the long term, the most significant risk is that changed circumstances or a severe market decline might prompt them to liquidate their holdings at an inopportune time. This would make it unlikely that they could achieve the expected long-term returns of a given asset allocation. Therefore, it is important that investors develop an approach that balances risks, but they must also understand and accept the inherent volatility that accompanies a growth-oriented portfolio.
Conservative investments are meant to preserve capital. Therefore, we continue to recommend that clients invest the majority of their fixed-income allocations in low-yield, safe investments that should not be too adversely affected by rising interest rates. Such securities may include money market funds, short-term corporate and municipal bonds, floating-rate loan funds and funds pursuing absolute return strategies. Although these investments will earn less in the short term than a riskier bond portfolio, rising rates will not hurt their principal value as much. Therefore, more capital will be available to reinvest at higher interest rates.
Investors should also achieve some tax savings by focusing on total return rather than on generating income, as long-term capital gains realized from the sale of appreciated positions will receive more favorable tax treatment than will interest income that is subject to ordinary income tax rates. Moreover, focusing on total return will also mitigate exposure to the new tax on net investment income.
So When Is It Safe To Get Back Into Bonds?
Despite my initial claim that this is not the best question to ask, I will give you an answer. Once bond yields begin to approach their historical averages, we will recommend that investors move certain assets into longer duration fixed-income securities. But you cannot wait for the Federal Reserve to change interest rates. Like any other market, values in the bond market change based on people's expectations of the future. Even in normal interest rate environments, however, we typically advise clients that the majority of their fixed-income allocation be invested in short- and intermediate-term bonds. Bonds are for protecting your wealth, not for risking it.
By: Benjamin C. Sullivan
For more articles, please visit the Palisades Hudson Financial Group LLC newsletter or subscribe to the blog.
Newsletter: http://palisadeshudson.com/sentinel/
Blog: http://palisadeshudson.com/current-commentary/
But the question still heads down the wrong path. Generalizations about the timing of getting into and out of asset classes are rarely accurate, and they distract from the more productive goal of focusing on what you can do to maintain your long-term financial health. The answers to several other questions about bonds, however, may help in determining an appropriate investment strategy to meet your goals.
Before we talk about the state of the bond market, it is important to discuss what a bond is and what it does. Although there are some technical differences, it is easiest to think of a bond as a tradable loan. Bonds are obligations of the issuer, acting as a borrower, to repay a certain sum with interest to the lender, or bondholder. Bonds are generally issued with a $1,000 "par" or face value, and the bond's stated interest rate is the total annual interest payments divided by that initial value of the bond. If a bond pays $50 of interest per year on an initial $1,000 investment, the interest rate will be stated as 5 percent.
Simple enough. But once the bonds are issued, the current price or "principal" value, of the bond may change because of a variety of factors. Among these are the overall level of interest rates available in the market, the issuer's perceived creditworthiness, the expected inflation rate, the amount of time left until the bond's maturity, investors' general appetite for risk, and supply and demand for the particular bond.
Though bonds are typically perceived as safer investments than stocks, the reality is slightly more complex. Once bonds trade on the open market, an individual company's bonds will not always be safer than its stocks. Both stock and bond prices fluctuate; the relative risk of an investment is largely a factor of its price. If all types of markets were completely efficient, it is true that a bond would always be safer than a stock. In reality, this is not always the case. It's also entirely possible that a stock of one company may be safer than a bond issued by a different company.
The reason a bond investment is perceived as safer than a stock investment is that bondholders are ranked more highly than shareholders in the capital structure of an organization. Bondholders are therefore more likely to be repaid in the event of a bankruptcy or default. Since investors want to be compensated with added return for taking on additional risk, stocks should be priced to provide higher returns than bonds in accordance with this higher risk. As a result, the long-term expected returns in the stock market are generally higher than the expected return of bonds. Historical data have borne out this theory, and few dispute it. Given this information, an investor looking to maximize his or her returns might think that bonds are only for the faint of heart.
Why Invest In Bonds?
Even an aggressive investor should pay some attention to bonds. One benefit of bonds is that they have a low or negative correlation with stocks. This means that when stocks have a bad year, bonds as a whole do well; they "zag" when stocks "zig." In every calendar year since 1977 in which large U.S. stocks have had negative returns, the bond market has had positive returns of at least 3 percent.
Bonds also have a higher likelihood of preserving the dollar value of an investment over short periods of time, since the annual return on stocks is highly volatile. However, over longer periods of 10 years or more, well-diversified stocks virtually guarantee investors a positive return. If an investor will need to withdraw money from his or her portfolio within the next five years, conservative bonds are a sensible option.
Even if you are not going to withdraw from your portfolio, conservative bonds provide an option on the future. In a downturn, you can redeploy the preserved capital into assets that have effectively gone on sale during the market decline. Bonds in a portfolio reduce volatility, cover short-term cash needs and preserve "dry powder" to deploy opportunistically in a market downturn. These are all sensible uses. On the other hand, over investing in bonds can pose more risks than investors may realize.
What Are The Risks Of Bonds?
Imagine bonds' current values and interest rates sitting on opposite sides of a seesaw. When interest rates go up, bond prices go down. The magnitude of the decrease in bond values increases as the bond's duration increases. For every 1 percent change in interest rates, a bond's value can be expected to change in the opposite direction by a percentage equal to the bond's duration. For example, if the market interest rate on a bond with a two-year duration increases to 1.3 percent from 0.3 percent, the bonds should decrease in value by 2 percent. If rates normalize to the historical average of 4.2 percent, the two-year bond should decrease in value by about 7.8 percent.
While such negative returns are not appealing, they are not unmanageable, either. However, longer-term bonds pose the true risk. If interest rates on a 10-year duration bond increased by the same 4 percent, the current value of the bond would decrease by 40 percent. Interest rates are still not far from historic lows, but at some point they are bound to normalize. This makes long-term bonds in particular very risky at this time. Bonds are often referred to as fixed-income investments, but it is important to recognize that they provide a fixed cash flow, not a fixed return. Some bonds may now provide nearly return-free risk.
Another major risk of over investing in bonds is that, although they work well to satisfy short-term cash needs, they can destroy wealth in the long term. You can guarantee yourself close to a 3 percent annual return by buying a 10-year Treasury note today. The downside is that if inflation is 4 percent over the same time period, you are guaranteed to lose about 10 percent of your purchasing power over that time, even though the dollar balance on your account will grow. If inflation is at 6 percent, your purchasing power will decrease by more than 25 percent. Conservative bonds have historically struggled to keep up with inflation, and today's low interest rates mean that most bond investments will likely lose the race. Having a traditionally "conservative" asset allocation of 100 percent bonds would actually be riskier than a more balanced portfolio.
The Federal Reserve's decision to maintain low interest rates for an extended period was meant to spur investment and the broader economy, but it comes at the expense of conservative investors. In the face of low interest rates, many risk-averse investors have moved to riskier areas of the bond market in search of higher incomes, rather than changing their overall investment approaches in a more disciplined, balanced way.
Risk in fixed income comes in a few primary varieties: credit risk, interest rate risk, currency risk and liquidity risk. Some investors have shifted their investments to bonds from lower-quality issuers to earn more income. This strategy can backfire if the company's ability to meet its obligations decreases. Longer-term bonds also pay higher incomes than their shorter-term counterparts, but will lose substantial value if interest rates or inflation rise. Foreign bonds might have higher interest rates than domestic bonds, but the return will ultimately depend on both the interest rates and the changes in currency exchange rates, which are hard to predict. Bondholders might also be able to generate more income by finding an obscure bond issuer. However, if the bond owner needs to sell the bond before its maturity, he or she may need to do so at a large discount if the bonds are thinly traded.
The growing list of municipalities that have defaulted on bonds serves as a reminder that issuer-specific risk should be a real concern for all bond investors. Even companies with good credit ratings experience unexpected events that impair their ability to repay.
Taking on more risk in a bond portfolio is not inherently a poor strategy. The problem with it today is that the price of riskier fixed-income investments has been driven up by so many investors pursuing the same strategy. Given how many investors are hungry for increased income, taking on additional risk in bonds is likely not worth the increased return.
Given The Risks, What Do We Suggest?
We recommend that investors focus on maximizing the total return of their portfolios over the long term, rather than trying to maximize current income in today's low interest rate environment. We have been wary of the risk of a bond market collapse because of rising interest rates for a long time, and have positioned our clients' portfolios accordingly. But that does not mean avoiding fixed-income investments altogether.
While it may be counter intuitive to think that adding equities can actually decrease risk, based on historical returns, adding some equity exposure to a bond portfolio provides the proverbial free lunch - higher return with less risk. For individuals and families who are investing for the long term, the most significant risk is that changed circumstances or a severe market decline might prompt them to liquidate their holdings at an inopportune time. This would make it unlikely that they could achieve the expected long-term returns of a given asset allocation. Therefore, it is important that investors develop an approach that balances risks, but they must also understand and accept the inherent volatility that accompanies a growth-oriented portfolio.
Conservative investments are meant to preserve capital. Therefore, we continue to recommend that clients invest the majority of their fixed-income allocations in low-yield, safe investments that should not be too adversely affected by rising interest rates. Such securities may include money market funds, short-term corporate and municipal bonds, floating-rate loan funds and funds pursuing absolute return strategies. Although these investments will earn less in the short term than a riskier bond portfolio, rising rates will not hurt their principal value as much. Therefore, more capital will be available to reinvest at higher interest rates.
Investors should also achieve some tax savings by focusing on total return rather than on generating income, as long-term capital gains realized from the sale of appreciated positions will receive more favorable tax treatment than will interest income that is subject to ordinary income tax rates. Moreover, focusing on total return will also mitigate exposure to the new tax on net investment income.
So When Is It Safe To Get Back Into Bonds?
Despite my initial claim that this is not the best question to ask, I will give you an answer. Once bond yields begin to approach their historical averages, we will recommend that investors move certain assets into longer duration fixed-income securities. But you cannot wait for the Federal Reserve to change interest rates. Like any other market, values in the bond market change based on people's expectations of the future. Even in normal interest rate environments, however, we typically advise clients that the majority of their fixed-income allocation be invested in short- and intermediate-term bonds. Bonds are for protecting your wealth, not for risking it.
By: Benjamin C. Sullivan
For more articles, please visit the Palisades Hudson Financial Group LLC newsletter or subscribe to the blog.
Newsletter: http://palisadeshudson.com/sentinel/
Blog: http://palisadeshudson.com/current-commentary/
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