All posts by Alison Heath

Investing In Bonds – What You Need To Know

There are certain things you must understand about bonds before you start investing in them. You may purchase the wrong bonds at the wrong maturity date if you don’t understand these things.

The three most important things that must be considered when purchasing a bond include the par value, the maturity date, and the coupon rate.

The bond’s par value is the amount of money you’ll be receiving when the bond reaches its maturity date. When the bond reaches maturity, you will receive your initial investment back.

The date that the bond reaches its full value is called maturity date. On this date, you will receive your initial investment, plus the interest that your money has earned.

Corporate and State and Local Government bonds can be ‘called’ before they reach their maturity, at which time the corporation or issuing Government will return your initial investment, along with the interest that it has earned thus far. Federal bonds cannot be ‘called.’

You’ll receive an interest when the bond reaches maturity and this is called the coupon rate. To find out what the interest will be, you need to use other information since the number is written as a percentage. A bond that has a par value of $2000, with a coupon rate of 5% would earn $100 per year until it reaches maturity.

Banks don’t issue bonds so many people don’t understand ho to go about buying one. There are two ways this can be done.

You can use a broker or brokerage firm to make the purchase for you or you can go directly to the Government. Using a brokerage means that it’s likely for you to be charged with a commission fee. Shop around for the lowest commissions if you want to use a broker.

Nowadays it’s not so difficult to purchase directly through the Government. A program called Treasury Direct will allow you to purchase bonds and they will be held in one account for easy access. This will allow you to avoid using a broker or brokerage firm.

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Tips On Utilizing Your Financial Safety Net

When it comes to the money that you set aside for annual or semi-annual payments or for emergencies where you need extra cash quickly, where do you keep it? Drawing funds from any of your savings or investment accounts is something you may not want to do since there may be a penalty for early withdrawal or it might be financially disadvantageous at that time.

Here’s another question. Are you setting anything aside in case you need to pay the deductible on an insurance claim?

A good place to put funds for infrequent payments or for possible emergencies is in a money market account where interest rates are most often higher than savings accounts and are more accessible. In some banks, even higher rates on Internet money market accounts are offered. What you need to do is check your bank’s rates on various types of accounts to see which would be best. A good idea would be to compare banks. There can be a big difference. Money market accounts require a higher balance, but the amount you will need to keep in it will more than meet that.

The good thing about money market accounts is that it is usually more than enough for most people even though there is a limited number of checks you can write on it in a given time period.

Planning your budget would mean that you will need to make payments to this account until the balance is sufficient to cover your home and auto annual or bi-annual payments and cover all your deductibles for your home, auto, medical and dental policies. Once this account is fully funded, the interest earned will be able to reduce your monthly budget payments that go to replace that which was used for insurance payments or for emergencies.

With this account in place, you will be able to take the highest deductible allowed thereby reducing your monthly insurance payment. You will now be able to make an annual payment, saving on the service charges if you pay your auto insurance quarterly or twice a year.

It is definitely better than most savings and checking account interest rates even though money market accounts may not earn the kind of return as a mutual fund or other types of investments. Money market accounts have the advantage of easy access for your infrequent financial needs.

You can give yourself some efficient financial security by enabling your money to work for you in several ways as long as you have a little self-discipline.

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Value Investing – The Basics

Value Investing refers to a philosophy or practice of buying stocks that are fundamentally sound, with a stock price below its obvious value. There are various indicators that Value Investors use to determine that a company is both sound and the stock price is undervalued. The value investor is perhaps more concerned with the business and its fundamentals than other influences on the stock’s price unlike any other style of investor out there.

Fundamentals, such as dividends, earnings growth, cash flow, and book value are more critical than market forces on the stock’s price. Generally buy and hold investors are value investors. They will hold a stock for long term periods and are not concerned with short term swings in the stock price.

When the Value Investor determines that the fundamentals are sound, but the stock is trading at a price below its obvious value, he or she knows that this is a potential investment candidate. The assumption is that the market has incorrectly undervalued the stock. When the market corrects that mistake, then it means that the stock’s price should increase towards the obvious value point.

How do Value Investors find a potential investment?

In the bottom 10 percentile for its sector is price to earnings ratio less than 1 is debt to equity ratio less than 1 is price to book value PEG value of less than 1 Did you know that stock value is trading at 60-70% of its intrinsic value?

The P/E or price to earnings ratio can be calculated by dividing the current price of the stock by the annual earnings per share. Having a higher P/E would mean that the more earnings growth investors will expect and the higher premium they are willing to pay for that anticipated growth.

To calculate debt to equity, you need to divide the total liabilities by the shareholders equity.

Price to Book Value is calculated by taking the current price per share and dividing by the book value per share.

The PEG is calculated by taking the P/E and dividing it by the projected growth in earnings.

A complicated process is the intrinsic value of a stock and it is also considered an inexact science by most investors. Generally, the intrinsic value of a company or an asset is determined based on an underlying perception of the value. Brand Name, Goodwill, and barriers to entry in a market are some of the factors that will determine the intrinsic value of a stock. The MorningStar.com is what you may be interested in for helping you determine a stocks intrinsic value. What they do is calculate a number called ‘fair value’ and this is similar to intrinsic value.

Many investors have increased their wealth substantially using a value-based approach to investing. This overview of Value Investing suggests a philosophy that works well over time if you buy carefully and use patience to hold for the long term.

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