Saturday, April 17, 2010

“Personal Finance - Buffalo News” plus 3 more

“Personal Finance - Buffalo News” plus 3 more

Personal Finance - Buffalo News

Posted: 17 Apr 2010 09:42 AM PDT

Return to Personal Finance homepage >>> - ksl.com

Posted: 17 Apr 2010 09:42 AM PDT

Introduction to Deposit Accounts - Examine the advantages and disadvantages of deposit accounts. They can be valuable tools for the investor, even the investor who also chooses to invest in volatile markets. In addition to studying the basic makeup of deposit accounts, you will be introduced to a form of account called the central asset account. Finally, you will learn how you can use deposit accounts as part of an overall investment approach.

Introduction to Certificates of Deposit (CDs) - Discover the basics of investing in these short-term, interest-bearing certificates. Learn how they work, where they are sold, and how they earn interest. There are several categories of CDs, classified by deposit amount or special characteristics, such as variable rates of interest. After completing this tutorial, you will be able to identify what these categories are.

Introduction to Money Market Securities - Explore the world of highly marketable, short-term debt securities such as Treasury bills and commercial paper. The characteristics of money market securities are explained and the most common types identified. This is the place to find out what negotiable certificates of deposit, banker's acceptances, and repurchase agreements are all about. The tutorial also introduces mutual funds that specialize in the money market.

Five Filters featured article: Chilcot Inquiry. Available tools: PDF Newspaper, Full Text RSS, Term Extraction.

PERSONAL FINANCE: “My name is Bond” - NEXT

Posted: 17 Apr 2010 12:27 PM PDT

Whether you are just starting out in your career, saving for your children's education, a new home, or approaching retirement, investing in bonds can help you achieve your objectives.

"My name is Bond"

When you purchase a bond, you are lending an amount of money to a company, a state or federal government or other issuer for a set period of time. In return, you are guaranteed a fixed income, a coupon, payable in two equal, semi-annual instalments. The borrower also agrees to repay the face value or principal of the bond when it matures.

For example, if you invest a face value of N1,000,000 in a five year bond paying a coupon rate of 10% per year, assuming you hold the bond to maturity, you will receive ten coupon payments of N50,000 each, a total of N500,000. At maturity, the issuer will pay you back your N1,000,000 face value.

Diversification

To reduce the risk that any one asset-class may pose to an overall portfolio, it is recommended that investors maintain a diversified investment portfolio consisting of bonds, stocks and cash, depending upon the investor's particular circumstances and objectives. Bonds play an important role in a well-balanced portfolio and it makes sense to include them in your portfolio.

Bonds are issued in a range of tenors, from short term issues with one to five year maturities, to medium term of five to ten years, and over ten years for long term bonds. One may opt to "ladder" your bonds, buying several with staggered maturity dates timed for when a cash need arises for say, children's education or retirement.

Bonds offer flexibility

Although bonds are issued for a specified period of time, investors do not have to keep the bond until maturity. An investor may need cash for some purpose or interest rates may have risen since the bond was issued. Indeed "call" and "put" provisions make it possible for investors to buy and sell them ahead of maturity, trading them like shares.

Individual Bonds versus Bond Funds

As an investor you can choose between investing directly in a bond or in a bond mutual fund. The main advantage of a bond mutual fund is its convenience. A professional fund manager will usually make better investment choices than the average individual investor. In addition, a bond fund offers liquidity, competitive yields, and diversification across a range of bonds including government and corporate bonds, euro bonds and money market instruments. For smaller investors, a fund provides an opportunity to invest, as individual bonds are usually sold with minimum volumes.

Bonds and Risk

Even though they offer reliable fixed income, bonds are not risk free. When you invest in bonds, you face three risks, the risk of default, inflation, and of interest rate fluctuations.

Default risk is the chance that the issuer, be it a government or a corporation, will be unable to repay your money. Bonds offer a wide range in choice from the very safe Federal Government Bonds with an AAA rating, which are virtually risk-free as they are backed by the full faith and credit of the Federal Government, to corporate bonds.

Rating agencies, such as Agusto & Co, Fitch and Moody's assign ratings to bonds, are based on in-depth analysis of the issuer's financial condition and management, as well as other criteria. Such ratings, which are periodically reviewed, help to give investors an idea of how likely it is that a payment default will occur. As risk and reward go hand in hand, an investor that has an appetite for greater risk might select high yield bonds for the ensuing higher returns.

The value of a bond fluctuates with changes in market interest rates. When interest rates fall, bond prices rise, and when interest rates go up, the prices of bonds go down. If you are holding a bond issued at 6% and interest rates increase to 8% on comparable, newly issued bonds, your bond decreases in value, as there would be no incentive for anyone to buy your bond at the price you paid. As with all fixed income securities, inflation is a major risk as it erodes the purchasing power of future coupon payments.

Are bonds for you?

If you are looking for income rather than growth but need a better return than you get from cash, then government or corporate bonds are a good option. Even though stocks usually provide a higher return over the long-term, high quality bonds, will offer safety and stability. This is particularly useful for investors who have a relatively short time frame within which to invest including those approaching retirement and whose priority is for a predictable stream of income to meet living expenses and the preservation of their principal.

There is no hard and fast rule about how much to invest and which bonds to invest in. Your needs and goals change over your life cycle reflecting your age, your investment objectives, your investment horizon and your risk tolerance level. Whether you are just starting out in your career, saving for your children's education, for a new home, or approaching retirement, investing in bonds can help you achieve your objectives. Visit a primary dealer, your broker or investment advisor who will help you select a bond that best suits your needs.

Write to personalfinance@234next.com with your questions and comments. We would love to hear from you. All letters will be considered for publication, and if selected, may be edited.

Five Filters featured article: Chilcot Inquiry. Available tools: PDF Newspaper, Full Text RSS, Term Extraction.

PERSONAL FINANCE THROUGH THE STAGES OF LIFE - NEXT

Posted: 17 Apr 2010 09:49 AM PDT

As we age, our financial needs, goals and priorities change. In this series, we will embark on a journey through life's stages. Planning ahead for each stage will help to prepare you for financial consequences of the major life events. These significant milestones range from starting a first job, getting married, starting a family, buying a home, moving up in your career, caring for aging parents, to the loss of a loved one, planning for retirement and your legacy.

20 – 30 Starting Out

If you are in your twenties, you are probably just starting out in your career. You may still be living at home without the attendant costs of paying rent and utility bills, or you may be married and either thinking about having children or may have already started a young family.

This is the time to establish the foundation of your financial future; start to imbibe sound financial habits by preparing a budget, developing a saving pattern, and setting financial goals. You may not have a lot of money in this stage, but you have the advantage of time to work towards your long term goals including your retirement. At this stage, your responsibilities are usually relatively low and so the capacity to take risk is high with the prospect of higher long term returns.

30 – 40 Established earner

In your 30s and 40s you should be focused on your goals and bringing them to fruition. People in their thirties are usually established in their jobs and in the midst of raising a young family. These are the years when mortgage payments, child care expenses, education savings and other significant costs come to bear. It is important to ensure that your insurance coverage keeps apace with your changing circumstances.

40 – 50 Prime earning years

During this stage, even though you are likely to be in your prime earning years, your expenses tend to be rising almost as fast as your income. School fees bills will be at their highest now, and concerns are primarily around educating children along with more care and attention for aging parents.

With such huge responsibilities, the capacity to take risk tends to be lower than in the earlier stages, although this varies according to each individual's risk profile. This phase is critical to your long term investment success and what you save and invest now will have huge implications on the quality of life you will be able to experience during your retirement years.

50 - 60 Preparing for Retirement

You are probably at the peak of your career, your mortgage is paid off and the children are completing their education. Retirement plans should be on the front burner. If you have been in paid employment, your priority is maintain the standard of living that you have grown accustomed to, without a regular income and benefits such as health care and accommodation that your employer may have provided. Remember to plan for large and looming expenditures such as your children's weddings.

Retirees are naturally risk averse; liquidity and the preservation of accumulated wealth are of primary concern. Remember that with better health care and longer life spans, you could easily expect to spend a third of your life in retirement. This means that the long-term growth prospects for your investments continue to be important so that you can maintain your financial independence for your entire lifetime.

60 – 70 Retirement

You have retired. Investments you made decades ago should be providing you with the income you need now, in the form of dividends from your equities portfolio and rental income from real estate investments.

Your retirement planning should be paying off now and it should be a very enjoyable and fulfilling time. For many people retirement ushers in a period of new experiences, philanthropy, and a time to take an active interest in causes that are close to your heart.

Over 70 Leaving a legacy

This is the time to think about leaving a legacy for your family or community. Do you have a will? Have you thought about establishing a trust? After working so hard for so many years it is important that a plan is in place for the management, protection and distribution of your wealth after your lifetime in accordance with your wishes. There may well be health issues to contend with, and your health insurance coverage should be a cushion.

At whatever age or stage you are in life, you will be presented with different opportunities and challenges which will make the saving and investing strategies that seemed right at one phase of your life inappropriate for another. By anticipating the life events you will undoubtedly encounter, you will be better equipped to meet your evolving needs as your income levels, spending patterns and family obligations change.

Write to personalfinance@234next.com with your questions and comments. We would love to hear from you. All letters will be considered for publication, and if selected, may be edited.

Five Filters featured article: Chilcot Inquiry. Available tools: PDF Newspaper, Full Text RSS, Term Extraction.
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