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Your Guide to Retirement: FAQs About Bonds

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Your Guide to Retirement- FAQs About Bonds

Bonds are an important part of your retirement portfolio, and the closer you get to retirement, the more of them you should have. 

Nevertheless, beginning investors often have a number of questions about bonds. 

Here’s what you need to know.

If I Invest in a Bond, How Much Money Can I Make Off It?

That depends on the issuer and the bond’s maturity—that is, the length of time it lasts and pays you interest until the principal is returned to you.  Generally speaking, longer terms pay higher interest rates.

As far as issuers go, the less stable ones will generally offer a higher interest rate to you. 

This is to attract you as an investor, since you know there is a higher chance that this particular issuer will fail to make its bond payments. 

For the absolute safest bet, go with Treasury bills, which the United States government issues.

What Do the Returns Look Like Compared With Stock Returns?

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As you can see, stocks are the clear winner return-wise.

Why Then, are Bonds Considered Better for Retirement?

  • Bonds provide you with a stability that stocks cannot, so having at least some bonds in your portfolio cushions you against major stock losses.
  • Bonds provide regular income in the form of interest payments
  • Bonds are incredibly secure. U.S. Treasuries are second only to cash in liquidity and safety.
  • There are bonds which are non-taxable. While their yields tend to be lower, the lack of tax may cancel out this difference for individuals in higher tax brackets.

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How About the Risks?

Inflation poses a serious risk to bond holders. 

The cost of goods and services goes up over time—the payout from your bonds do not. 

Long-term bonds run a serious risk of not keeping up with inflation.

With all but the most stable bonds—U.S. treasuries—there is a risk that the issuer will default on its payments. 

This risk is particularly magnified with junk bonds, issued by borrowers with such a poor credit rating that it will be unsurprising if they fail to make payments to you at all.

Should you choose to sell your bond before its term is out, you should be aware that bond prices are subject to market pressures and rise and fall just as stock prices do.

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The above is a sample from Barclays Indices on the web, which gives information related to the latest movements in bond indices.

The price of bonds tends to have an inverse relationship to interest rates—when one goes up, the other goes down, and vice versa. 

If your bond has a very long term, and you wish to sell it early, there is a good chance it will not cost what it did when you bought it, which may or may not be a good thing for you.

I’ve heard of TIPS—What Are They?

  • TIPS stands for Treasury Inflation-Protected Securities
  • TIPS’ rate of interest is not as high as other Treasury bonds
  • However, the face value of TIPS is changed to keep up with the consumer price index.
  • Thus, inflation no longer poses a risk, as the face value and interest of your TIPS go up to match.

What Should I Put in my Retirement Portfolio?

You should diversify with bonds the same way you would diversify with stocks

A good spread would be amongst high-grade corporate bonds (avoid junk bonds) and Treasury bonds. 

If you are in a high tax bracket, you may also want to look into municipal bonds, as their interest is tax-free.

How Do I Buy Bonds?

You can choose to buy almost any kind of bond through a broker, same as stock, though the transaction costs may be a whole lot higher.

For TIPS or U.S. Treasuries, it’s better and cheaper to buy from the Feds, as no broker is necessary for this transaction. 

The federal government offers these at auction fairly regularly.

If you would like to look into the details, a good place to start is the TreasuryDirect Website, which among other things contains auction schedules like the example below:

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If you are a small investor, look into mutual funds for diversification purposes. 

Getting good diversification through individual bonds tends to cost $25,000 to $50,000, whereas bond funds will open you up to owning stakes in dozens of bonds for far less.

Which Should I Buy—Short-Term or Long-Term Bonds?

For a higher interest rate, go with longer-term bonds as opposed to shorter. 

An example is, the difference between 30-year Treasury bonds and five-year Treasury notes—the former pays at least a percentage point more in interest. 

The reason for this discrepancy is that the longer the life of the bond the greater the chance of erosion by inflation or interest rates.

For the majority of long-term investors, bonds that last from one to ten years are in a good sweet spot, as they have decent yields but less volatility than their longer or shorter-lived peers.

How Heavy Should My Portfolio Be In Bonds?

This depends on where you are in your life and career. 

As a younger, working individual, you should put more emphasis towards stocks for their higher returns. 

However, the older you get and the closer you are to retirement, the more you should move towards bonds for their stability and guaranteed income.

How Will My Bonds Be Taxed?

Some bonds generate taxable income. 

Corporate bonds, for instance, will always make taxable interest payments. 

Treasuries, however, only garner federal taxes while being exempt from local and state taxes.

Municipal funds are also free of federal taxes, and may be free of local and state taxes when bought in-state. 

Retirement accounts may also offer tax savings.

Conclusion

Bonds are an important tool to have in your retirement arsenal. 

They provide guaranteed income, and while they may not give as high a return as stocks, they are more stable. 

U.S. Treasuries are considered some of the safest investments that there are.

So, however far away from retirement you may be, it is a good idea to become more educated about bonds. 

The more you learn now, the more you will know what you are working with later.

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How To Teach Your Kids About Credit Cards

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If you have kids in college, this article is for you. Teaching kids about credit cards is one of the most important tools you can give them The world of credit cards can be confusing and giving your kids a little education might save them a lot of headache and debt.

Students need to learn credit card lessons

BY JULIE JASON

Do you have children in college? Have you talked with them about how to handle credit?
When I wrote about this topic in 2008, students were inundated with credit card offers. According to Benjamin Lawsky, who, as a special assistant to the New York state attorney general, testified before the U.S. House of Representatives’ Subcommittee of Financial Institutions and Consumer Credit, “marketers set up tables in high-traffic spots on campus, such as cafeterias, student unions, bookstores, and other campus buildings … [and at] campus events including freshman orientation, activity fairs, athletic events and graduation fairs.”

Then came the Credit Card Accountability Responsibility and Disclosure Act of 2009 (the CARD Act).

Now, companies cannot sign up individuals under the age of 21 without a co-signer or proof of personal financial resources. Marketers offering incentives like pizza can no longer do so while at “an institution of higher education” or even within 1,000 feet of the school. They also may not make such offers “at an event sponsored by or related to” the school. Pre-approved offers of credit to individuals under the age of 21 also are prohibited.

Still, card offers are being made, and students need to know whether to act on them. You can expect that student credit cards will have less favorable terms than those offered to people who have a credit history; students are higher-risk borrowers.
Further, students, even those over age 21, may not understand that missing a payment or making a late payment not only increases the cost of credit, but also creates a negative credit history, something everyone should work to avoid.

“A bad credit history can make it harder for you to get mortgages, car loans and credit cards in the future,” explained Matt Schulz, a senior industry analyst at CreditCards.com, a credit card comparison website.

“If you do get them, crummy credit can also cost you a fortune over the years in the form of higher interest rates and fees. It can also stand in the way of getting a job,” explained Schulz.

What can a parent do?
Since going away to college is the first step toward independence, you want to be sure that you respect your child’s need for self-sufficiency. But that doesn’t mean he or she has to go it alone. There are simply too many serious, long-lasting repercussions.

Communication and planning are key.

First, before your child leaves for school, talk to him or her about the benefits and the detriments of getting a student card. Establishing a credit history is a benefit. So is learning the discipline of paying bills on time to avoid a negative history.

Second, research options together with your child. Look online at CreditCards.com (search for “student cards”), WalletHub.com (click on “Credit Cards,” then “College Student”) or creditkarma.com (go to “Credit Cards,” then “Student”). Consider the fees, rates and penalties of different cards, and make a joint decision on the type of card that might make sense. For example, you might consider prepaid cards or secured cards. Prepaid cards work like debit cards. No credit is extended. You prepay the card, and when the balance is low, you fund it. Secured cards require a cash deposit that acts as the credit line for the account. This allows a credit limit to be established, without risk to the bank.

Third, decide on an acceptable monthly budget and what to do if it isn’t followed.  Talk about how you would like your child to communicate with you if that happens.

Fourth, determine whether you and your child agree that he or she should not accept credit card offers before reviewing them with you.

Fifth, agree on how the two of you should check in with each other. Will you talk each month about finances, perhaps setting a date in advance? Will you encourage your child to let you know about challenges before they become problems?

In the beginning, your child will benefit from some gentle guidance. You don’t want him or her to be adrift in a financial morass that could have been avoided with a little planning and care. Financial literacy calls for learning a new skill, and it is not reasonable to expect a child to go on this financial journey alone.

For information on the impact of the CARD Act, read the Consumer Financial Protection Bureau’s report (the Card Act Report), which you can find at https://www.consumerfinance.gov.

* * *
Julie Jason, JD, LLM, a personal money manager (Jackson, Grant of Stamford, Conn.) and award-winning author, welcomes your questions/comments ([email protected]). To hear Julie speak, visit www.juliejason.com/events.

(c) 2018 Julie Jason.
Distributed by King Features Syndicate Inc.

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JPMorgan Chase’s China License a Huge Win

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The financial sector seems to be alive and well under Donald Trump’s new administration. For all his talk of demonizing Wall Street, Trump seems to have taken a shine to banks and their executives. And even though President Trump has a rocky relationship with China, one of his closest banks just did something no bank has ever done before – receive a license to underwrite corporate bonds in China’s interbank bond market. Will other banks be far behind?

Is the JPMorgan Chase’s Relationship With the President the Reason for the Historic License?

JPMorgan Chase is living large. The bank’s CEO, Jamie Dimon, has a particularly close relationship with our new president, and was in fact Trump’s first pick for Treasury Secretary. The bank is up about 24% since the election. Last week, President Trump signed an executive order to loosen regulatory restrictions on banks and lenders by targeting the Dodd-Frank act, essentially giving JPMorgan the opportunity to double its lending, which is already near an all time high. Now, the largest U.S. lender just got entry into China’s $6.4 trillion bond market – the third largest in the world. Is it all connected? Is Dimon’s relationship with Trump to credit for its good fortune?

Yes and no.

Dimon is a close advisor and friend to Trump, meaning that for all his promises to clean up Wall Street, Trump’s actions are all currently focused to help the financial sector. But though Dimon can advise Trump, it’s ultimately up to the bank itself to chart its own course. And JPMorgan has done a stellar job of that.

The bank was granted a business license in September of 2016 to operate a fully owned fund management business in China thanks to the Chinese Central Bank’s decision to loosen entry restrictions. That license led to its approval to underwrite corporate debt in the China market, which is JPMorgan’s bread and butter. The bank earned about half of its investment banking fees from debt-underwriting last year, meaning that it now has the ability to double its revenue with one new market.

Watch this news clip from CNBC where JPMorgan Chase’s CEO, Jamie Dimon talks about President Trump’s reforms:

Thanks to China loosening entry restrictions, JPMorgan won’t be the only U.S. headquartered bank in town for long. But between that time and today, the lender should see ample profits and develop some competitive barriers to entry for other banks. Between the China license and the repeal of Dodd-Frank, expect shares of JPMorgan Chase & Co. (JPM) to rise UP.

 

The executive order for the repeal of Dodd-Frank Act has been signed, see the whole story here!

 

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This publication provides general information about certain subjects, and should not be construed or taken as advice (legal, financial, investment, tax, or otherwise). Do not construe or take any information in this publication as a solicitation, offer, opinion, or recommendation to buy or sell any securities, bonds, or other financial instruments or to provide any legal, financial, investment, tax, or other advice or service about the suitability or profitability of any financial instruments or investments.

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More Bad News From Wellsfargo CEO Resigns

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SAN FRANCISCO–(BUSINESS WIRE)– Wells Fargo & Company (NYSE:WFC) announced today that Chairman and Chief Executive Officer John has informed the Company’s Board of Directors that he is retiring from the Company and the Board, effective immediately. The Board has elected Tim Sloan, the Company’s President and Chief Operating Officer, to succeed him as CEO, and Stephen Sanger, its Lead Director, to serve as the Board’s non-executive Chairman, and independent director Elizabeth Duke to serve as Vice Chair. Sloan also was elected to the Board.

Wells Fargor CEO John Stumpf Resigns

Sloan’s appointment to CEO and election to the Board are effective immediately. He will retain the title of President.

Sanger said, “John Stumpf has dedicated his professional life to banking, successfully leading Wells Fargo through the financial crisis and the largest merger in banking history, and helping to create one of the strongest and most well-known financial services companies in the world. However, he believes new leadership at this time is appropriate to guide Wells Fargo through its current challenges and take the Company forward. The Board of Directors has great confidence in Tim Sloan. He is a proven leader who knows Wells Fargo’s operations deeply, holds the respect of its stakeholders, and is ready to lead the Company into the future.”

, a 34-year veteran of the Company, joined Wells Fargo in 1982 as part of the former Norwest Bank, becoming Wells Fargo’s CEO in June 2007 and its chairman inJanuary 2010.

“I am grateful for the opportunity to have led Wells Fargo,” said. “I am also very optimistic about its future, because of our talented and caring team members and the goodwill the stagecoach continues to enjoy with tens of millions of customers. While I have been deeply committed and focused on managing the Company through this period, I have decided it is best for the Company that I step aside. I know no better individual to lead this company forward than Tim Sloan.”

Sloan said, “It’s a great privilege to have the opportunity to lead one of America’s most storied companies at a critical juncture in its history. My immediate and highest priority is to restore trust in Wells Fargo. It’s a tremendous responsibility, one which I look forward to taking on, because of the incredible caliber of our people, and the opportunity we have to impact the lives of our millions of customers around the world. We will work tirelessly to build a stronger and better Wells Fargo for generations to come.”

Sloan joined Wells Fargo 29 years ago, launching a career that would include numerous leadership roles across the Company’s wholesale and commercial banking operations, including as head of Commercial Banking, Real Estate and Specialized Financial Services. He became president and COO in November 2015, when he assumed leadership over the Company’s four main business groups: Community Banking, Consumer Lending, Wealth and Investment Management and Wholesale Banking. Previously, he headed the Wholesale Banking group after serving as the Company’s Chief Financial Officer and, prior to that, as the Company’s Chief Administrative Officer.

Sanger has been a member of the Wells Fargo Board since 2003, serving as its Lead Director since 2012. Sanger also chairs the Governance and Nominating Committeeand is a member of Human Resources Committee and Risk Committee. He was CEO of General Mills, Inc., a leading packaged food producer and distributor, from 1995 until 2007. He served as chairman of General Mills from 1995 to 2008. He also serves on the board of Pfizer Inc.

Duke has been a member of the Wells Fargo Board since 2015. She served as a member of the Board of Governors of the Federal Reserve System from 2008 to 2013, where she served as Chair of the Federal Reserve’s Committee on Consumer and Community Affairs and as a member of its Committee on Bank Supervision and Regulation, the Committee on Bank Affairs, and the Committee on Board Affairs. She also previously held senior management positions at banks including Wachovia and SouthTrust.
Watch this video from CNN Money and find out what Elizabeth Warren says about Wells Fargo CEO to resign.

Amazon Expands Grocery Biz With Convenience And Drive Up Stores. Check this news here!

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The statements, views, and opinions of any article, contribution, editorial, or advertisement in this publication are not necessarily those of The Capitalist or its editorial staff, and are not considered an endorsement, sponsorship, or recommendation of any referenced product, service, issuer, or groups of issuers.

This publication provides general information about certain subjects, and should not be construed or taken as advice (legal, financial, investment, tax, or otherwise). Do not construe or take any information in this publication as a solicitation, offer, opinion, or recommendation to buy or sell any securities, bonds, or other financial instruments or to provide any legal, financial, investment, tax, or other advice or service about the suitability or profitability of any financial instruments or investments.

The Capitalist disclaims any liability for the accuracy of or your reliance on any statements, views, opinions, or information in this publication.


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