Offbeat Offerings: Mortgage-Backed Securities

Posted on May 20, 2014 | Investing

The current housing market decline, increasing mortgage defaults and the financial struggles at Fannie Mae and Freddie Mac have shined a spotlight on a particular fixed-income product that is often not particularly well-understood by individual investors—mortgage-backed securities.

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Where Credit Is Due: A Look at the Ratings

Posted on April 4, 2014 | Investing

There are many factors that individuals must consider when making investments in fixed-income securities. Current bond yields, current bond prices, and current as well as future interest rates all may have a big impact on the return of a fixed-income investment.

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The Dividend Yield: Stock Mutual Funds and ETFs That Generate Income

Posted on February 26, 2014 | Investing

Are you looking for an investment that has the potential to produce a growing income stream and long-term capital appreciation along with reasonable risk? Bond funds won’t suffice; their income is a prisoner of prevailing interest rates, and their capital appreciation in the long term is essentially zero, a combination that is exposed to inflation risk.

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How to Set and Revise Realistic Price Targets for Your Stocks

Posted on February 6, 2014 | Investing

An investor over time attaches some validity to his or her initial price objective, meaning that modifying that expectation becomes difficult for reasons totally contained only between one’s ears.

But stocks go where they want to, despite what any participants think is justified and despite what investors might wish would happen. Investors unable or unwilling to let go of original price opinions are doomed to lose, either through losses in positions that never come back, and/or from better opportunities elsewhere that have been lost.

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Taking Aim at Your Retirement: A Look at Target Date Mutual Funds

Posted on June 5, 2013 | Investing

There is an appealing simplicity in the concept of target date funds that has a strong attraction for investors: Just pick a year, and lean back—your portfolio management is now on autopilot, with coordinated diversification among the major asset classes that is rebalanced periodically toward your estimated time of arrival, your target date.

But while the concept of the target date fund has a justified appeal to a broad range of investors, making the right choice among the many target date fund offerings and understanding how the funds work is not quite as simple as it appears at first glance.

The Risk/Growth Dilemma

Target date funds are built on the assumption that investors who are farther from their target retirement date should have higher allocations to stocks, and that the stock commitment should decrease as the target date approaches. Thus, funds with an earlier target date will start out with a lower stock allocation than funds with a later target date, but all of the target funds within a family will decrease their commitment to stocks as the target date approaches.

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Market Barometers: A Look at Stock Indexes and How They Work

Posted on May 8, 2013 | Investing

You may not need a weather man to know which way the wind blows.

But in the financial world, you do need a stock market index to know which way the stock winds are currently blowing. That’s why the broad market indexes are quoted daily by virtually every media source as a barometer of the state of the overall market.

How do these market indexes work and what are they telling you?

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State-Based Exchange-Traded Funds

Posted on April 9, 2013 | Investing

Exchange-traded funds (ETFs) are continuing to prove themselves as ever-present and almost chameleon-like in their ability to take on many new forms as a perceived need arises. The latest additions to the ETF world are state-based ETFs.

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Life Cycle Funds

Posted on April 5, 2013 | Investing

Life cycle funds are marketed as a maintenance-free way for individuals to invest for retirement. They were created under the assumption that many individuals needed a one-stop investment vehicle that properly rebalances their portfolios over their investment lives, as their investment needs change. Typically, in an individual’s younger years, riskier but higher-return potential assets should be emphasized, but as the individual approaches retirement, the percentage commitment to these types of investments should be gradually reduced. Life cycle funds are designed to follow this investment pattern.

At first, life cycle funds were limited to mutual funds, but over the years, life cycle exchange-traded funds ETFs have been created.

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14 Personal Finance Questions

Posted on January 28, 2013 | Investing

A list of practical answers to frequently asked investing and personal finance questions.

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Rolling the Currency Dice: Investing in International Bond Funds

Posted on December 4, 2012 | Investing

The search for yield and the weak U.S. dollar have prompted individual investors to set their sights abroad, and to consider investing in foreign bond mutual funds. International bond mutual funds, however, have their own unique set of risks. And these risks are magnified by the often rapid ebb and flow of international currency markets.

Yields may be higher in other countries and the dollar may be swooning, but a careful look at international bond mutual funds is in order before you let your money travel overseas.

The two primary risks of investing in foreign fixed-income securities are:

Credit Risk: The riskiness of the issuers of the individual securities in the portfolio, and
Currency Risk: The risk that the currency in which the securities are denominated will change in value relative to the U.S. dollar.

There is also a more subtle risk for individual investors: understanding the sometimes arcane portfolio holdings of these funds, which may include futures, options, repurchase agreements, loan participations and asset-backed debt such as collateralized mortgage obligations.

And in terms of holdings, it can be surprising to what degree some of these international bond funds are actually invested in U.S. securities—contrary to the purpose driving most individual investors to international bond mutual funds in the first place.

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