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What the Markets Fears Most

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Elevation LLC partner Tim Freeman says look what prompted the rise in market volatility. He also said we’re very much into buying the dips. This market continues to be all about the stocks staged their best run in decades, and the index showed pure greed. When investors get greedy, they can bid up stock prices way too far.

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Basics and Terms

How to Invest: Are you Vulnerable to Inflation Risk?

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How to Invest: Are you Vulnerable to Inflation Risk?

Personal Investments can lose value short, and long term.
Companies assets are devalued, when bought and sold
Government Policy can increase the rate of inflation

Over the years, investments can lose their value if the money invested in them losing their purchasing power. Inflation risk is particularly dangerous because there is no way to avoid it, because money itself loses purchasing power.

 

Fed’s Fisher Comments on Policy, Inflation, US Dollar It is the risk caused by the unexpected rise in production costs due to the inflationary process. The essence of inflation as an economic category is the growth of prices for goods, works and services, which reduces the purchasing power of money in the economy. This kind of risk can be applied especially on large damage long-term investments, such as investments in shares and bonds.

What is Inflation Risk, and how does it affect you?

Individuals and legal entities with investment portfolios advised to actively manage their investments to avoid the problems associated with the inflationary risk. Moreover, this type of risk is useful to consider the short and long term.

It is the risk caused by the unexpected rise in production costs due to the inflationary process. The essence of inflation as an economic category is the growth of prices for goods, works and services, which reduces the purchasing power of money in the economy.

Investments can lose their value if the money invested in them losing their purchasing power.

This kind of risk can be applied especially on large damage long-term investments, such as investments in shares and bonds. Inflation risk is particularly dangerous because there is no way to avoid it, because money itself loses purchasing power, regardless of whether or not they have invested.

Individuals and legal entities with investment portfolios advised to actively manage their investments to avoid the problems associated with the inflationary risk. Moreover, this type of risk is useful to consider the short and long term. Inflation is a characteristic of most of the economies, but in the short term, its negative impact is insignificant, and that the investor has received considerable losses during 1-2 years. In the long term the situation may look completely different. Under the influence of money market factors it may increase their purchasing (this process is called deflation), which is likely to lead to an increase in the value of shares and bonds. Therefore, the impact factor of inflation in the long run may not be as devastating as it is in the short.

Inflation is a characteristic of most of the economies, but in the short term, its negative impact is insignificant, and that the investor has received considerable losses during 1-2 years. In the long term the situation may look completely different.

Under the influence of money market factors it may increase their purchasing (this process is called deflation), which is likely to lead to an increase in the value of shares and bonds. Therefore, the impact factor of inflation in the long run may not be as devastating as it is in the short.

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Basics and Terms

How to Invest: Bond Yield and Return Explained

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Learning the Markets – Yield and Return Explained

Different Yield Types and Return Calculations

Current Yield: What the bond annually pays divided by the bonds current price. This tells investors what they’ll earn if a bond is bought and held for a year. When you invest in a bond that trades at a premium or discount, current yield is a misleading indicator for the total return you can expect. If you buy a bond, which is trading at a discount, the bond’s price will increase as it moves towards maturity. As the face value is greater than the price you paid for the bond you will have a gain that is not included in the calculation of current yield.

Should you Invest in Government Bonds?

Read More about
Treasuries and Corporate Bonds

 

High Yield Bonds: rated BBB- at S&P and have higher required yield, similar to a maturity bond.

Yield-to-Call: If you’re a bond holder with a callable bond, you have calculated your yield to maturity, the rate of return you expect to earn until it matures, but you also need to calculate what happens if the bond gets called: the expected rate of return if the bond gets called at the first possible call date. It is calculated the same way as YTM through the five key approach. except

Yield-to-Maturity: This is the term which individuals usually use to reference the yield of a bond. It measures the amount the investor will be paid in the future and considers the coupon payments, the difference between the purchase price and face value and the return you should receive form re-investing the coupon payments. Bond prices behave as the inverse of interest rates. When interest rates surge, the value of an existing bond drops. When interest rates drop the value of the existing bond rises. When a bond is trading at a price below the amount you will receive from the bond at maturity, which is also known as face value, it is said to be trading at a discount. When it trades above face value, it is said to be trading at a premium. It calculates the expected rate of return, if we buy the bond today and hold it until maturity.

Yield-to-Worst is calculated on each of a bond’s call dates and is the utmost lowest possible yield that can be received on a bond without the issuer defaulting. It is a possibility that this calculation may result similar, even identical to the yield-to-maturity, but never higher.

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Basics and Terms

Free Resources

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Here are a few investor resources to help you along the way:

    • Charting websites: Free Stock Charts and Stock Charts are great online charting resources which offer charting, scanning and portfolio tracking on a free and fee-based subscription.
    • CFA Institute Tools: The CFA Institute offers a great toolkit for investors looking for resources.
    • SEC: The SEC’s Office of Investor Education and Advocacy provides a variety of services and tools to address the problems and questions you may face as an investor. They won’t tell you what investments to make, but they can help you to invest wisely and avoid fraud.
    • Rowe Price: T. Rowe Price offers a super-handy glossary of investing terms that every new investor should add to their resources folder.
    • Morningstar: Morningstar offers a Portfolio Manager that delivers independent insights, analysis, news, and research you need to understand your performance and improve your financial outlook.

 

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