Investing in Bonds » Bond Markets

Saving Bonds Good for Investment

admin — Mon, 14 Apr 2008 11:33:15 +0000

In the U.S.A., there are two popular types of saving bonds, the I series bonds and the EE series bonds. Both these bonds dole out a specific interest rate over the course of two years, with the interest being compounded on a semi-annual basis. However, that’s where the similirities end.

Series I bonds have the cost of their face value, with no guarantees to the specific value of the bond at any given time. The interest payment is comprised of two specific components: the non-variable interest payment and the variable interest payment. Both factors are based on the inflation index of the US economy. The most selling point of the I-bond is that they are protected against inflation risks, and moreover, should the inflation rate go up, the variable interest rate will follow suit.

Series EE bonds on the other hand usually cost the half of its face value. It pays out a fixed interest rate over 30 years. This may seem like an unproductive strategy but hold on. Series EE bonds are also guaranteed to double their value in 20 years, thus making the bond worth its face value. Supposing the interest rate of the bond is on the low end and cannot meet the doubled value within the twenty years, there will be a one-time payment added to the bond in question just to be able to meet the face value.

Choosing which is preferable depends on the circumstances and of course, inflation rate. If a double digit inflation hits the country, then being in the Series I bonds is a blessing, as it offers inflation protection. However, if interests rates are on the low end, the EE series is more dependable due to their guaranteed double value in the twentieth year.

S&P 500 Investing

admin — Tue, 01 Apr 2008 11:15:10 +0000

S&P 500 stands for Standard and Poor 500, where a specific index of 500 stocks are chosen with the following criteria: liquidity, market size, and industry grouping.. The S&P index is specifically designed to serve as an indicator of U.S. equities, that would reflect the return/risk qualities of the large cap universe. Basically, it’s the benchmark for the U.S. equity performance.

Some companies always included in the list of the S & P 500 is Microsoft, General Electronic, Pfizer, Citigroup, Wal-Mart, American International Group, and Intel. These companies are usually also the biggest in terms of market share and revenue in the nation, though bigger doesn’t necessarily mean they’re included. To be specific the S & P index chooses companies with the widest range of held stocks.

The companies included in the S&P 500 index are carefully chosen by the S&P Index committee, a group of economists and analysts in S&P’s employment. The S & P index is considered a market value weighted index, where every stock’s weight is proportional to it’s corresponding market value.

Investing in S & P 500 usually involves buying an index fund in a Vanguard fund based on the S & P 500. This is a popular path of investment for a lot of people. There are other choices other than Vanguard, but Vanguard has the edge of having difficult to beat low-expense ratios. Other than Vanguard, there’s also the new Exchange Traded Funds, which occasionally have lower expense rations than Vanguard.

Bond Market, Stock Market

admin — Wed, 19 Mar 2008 08:01:05 +0000

Bond markets and stock markets are both forms of investment, though the way the operate are very different. Those who make bond investments are cautious investors, always looking out for suspect bonds and taking as little risk as possible. The bond market has significantly lower potential gain than the stock market, but the upshot is, they have lower potential losses. Furthermore, bonds would guarantee at least an interest payment, and some bonds are backed by the full credibility of the whole government, which thus make them virtually fail safe.
Stock markets on the other hand, are more prone to losses, have more risks, and are generally undertaken by people who feel lucky or optimistic. Stocks are more erratic, and are all about future growth and estimated earnings. Stocks, unlike bonds, can only be backed by CEOs, who are fallible unlike the government.

With this disparity, it’s quite normal for pro-bond and pro-stock people to have a disconnected view on their craft. However, when it comes down to it, both markets look at the economy the same way, in the sense that everything depends on it. If the economy is doing well, stock prices will go up, while the prices of bonds will fall. When the economy is suffering some trouble, the prices of bonds will rise and stocks will fall. Their successes are inversely proportional.

Despite their polarized success functionalities, stocks and bonds continue to be a permanent presence in the world of economics and finance, and a veritable source of income for those who thrive on investments.