Jeremy Fulton, Financial Wellness Coach

Tag: bonds

  • Should you should KISS your investment strategy?

    Should you should KISS your investment strategy?

    You know what K.I.S.S. stands for

    Keep It Simple Silly

    And you thought I was going to insult you!

    We’ve both heard that “serious investors” have complicated and advanced investing products and strategies which enable them to make more than us mere mortal investors.

    • Hedge Funds
    • REITs
    • High Yield Bonds
    • FOREX trading
    • Commodities
    • Penny Stocks
    • Etc, etc, etc

    I will admit that there is potential that someone could make a lot more with these. There is also the potential that you could loose it all!

    I have one overriding investment philosophy that I teach my clients:

    Never invest in anything you don’t understand well enough to teach it to someone else.

    Think about it; if you have a thorough understanding of your investments, how they work in the market, and what makes them ‘go up’ or ‘go down’ then you are a lot less likely to panic and worry when the Dow Jones dips. In fact, you might even see a silver lining in market drops!

    It is possible to learn all the ins-and-outs of the more complex investments, but what will it gain you? Do you have the time and desire to become an expert? Or the time and desire to manage those investments?

    I’ve been trained in all that stuff (through the Certified Financial Adviser program) and I could teach you a lot of it, but I still don’t have a “sophisticated” investment strategy.

    Because I don’t have the time to manage my portfolio every day and want to keep my risk to a manageable level, while taking advantage of the long term growth of the market, I stick with mutual funds.

    Mutual funds are easy to understand, have high diversification (my eggs are in lots of different baskets), and are easy to invest with. I even invest in mutual funds that cover different market sectors to increase my diversification even more! (If you are not sure what a mutual fund is, please ask!)

    Boring? Yes. Simple? You bet! Do I know enough to teach you how they work? Of course! Give me a call and I’ll teach you today! Then you, too, can have confidence in your investments!

    What are your thoughts?

  • What is a Bond?

    Last week we answered the question, “What is a Stock”.  This week lets look at Bonds.  You’ve heard of them, I’m sure as an investment, “stocks and bonds.”  But what is it?

    A bond is considered a “debt investment.”  When you purchase a bond, you are loaning a company (issuer) your money.  It’s the opposite of your mortgage or auto loan; you make money off of them.  Though bonds rarely pay the same interest rate that you pay on your debt.

    Because a bond is a loan, it pays a fixed interest rate (coupon), usually every 6 months, and after the loaned money is paid back (on the maturity date).  Because they pay a fixed rate, they are also referred to as a type of fixed income security.

    Also because the payment is fixed/predicable, they are considered a lower risk investment than stocks (we’ve all heard stories of people loosing money in stocks).

    This lower risk comes at a price, though.  Bonds rarely have the earning potential of stocks or mutual funds (we’ll learn about mutual funds in a future post), and as such, having any significant amount of them in a portfolio can limit your ability to grow it for retirement (this is contrary to most financial advisors’ recommendations).

    The bond’s coupon is a function of credit quality of the company and the duration of the maturity.  You’ve probably heard of “junk” or high-yield bonds; when you invest in those, you are loaning a company money that may not be around long enough to pay you back, and as such, they pay the highest rates, whereas companies such as GE pay very low rates.

    It is possible to sell a bond before it’s maturity date; in fact, the first exchanges (think NYSE) were to buy/sell bonds!  The Venetians were exchanging them as far back as the 1300s!  In 1531 the first exchange was started in Antwerp, The Netherlands, long before stocks existed.

    An interesting fact you may not have thought about is that Savings Bonds are debt instruments of the US Government.  The national debt is nothing more than our government issuing bonds to pay for things that tax revenue doesn’t cover.  If you want to read a little bit more on bonds and bond markets, check out Investopedia .

    Well, what did you think of this article?  Do you have any questions or comments?  I’ll answer and address anything you post in the comments below: