Posts tagged Investments
Retirement Investment Considerations

A well-thought-out asset allocation in retirement is essential. But consideration must also be given to the specific investments that you choose. While it's impossible to discuss every option available, it's worth mentioning investment choices that might have a place in the income-producing portion of your overall investment strategy.

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Yield to Maturity, Yield to Call

Yield to maturity

Yield to maturity (YTM) reflects the rate of return on a bond at any given time (assuming it is held until its maturity date). It takes into account not only the bond's interest rate, principal, time to maturity, and purchase price, but also the value of its interest payments as you receive them over the life of the bond. Yield to maturity includes the additional interest you could earn by reinvesting all of the bond's interest payments at the yield it was earning when you bought it.

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Coupon Rates and Current Yield

If you're considering investing in a bond, one of the factors you need to understand is its yield. But it's important to know exactly what type of yield you're looking at.

What exactly is "yield?" The answer depends on how the term is used. In the broadest sense, an investment's yield is the return you get on the money you've invested. However, there are many different ways to calculate yield, particularly with bonds. Considering yield can be a good way to compare investments, as long as you know what yields you're comparing and why.

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Bond Yields: What's Taxable, What's Not

Comparing taxable and tax-free yields involves making sure you understand a bond's tax status. The interest on corporate bonds is taxable by local, state, and federal governments. However, interest on bonds issued by state and local governments--generically called municipal bonds, or munis--generally is exempt from federal income tax. If you live in the state in which a specific muni is issued, it may also be tax free at the state or local level.

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Investing: Building on Your Foundation

Setting investment goals

Setting goals is an important part of financial planning. Before you invest your money, you should spend some time considering and setting your personal goals. For example, do you want to retire early? Would you like to start your own business soon? Do you need to pay for a child's college education? Would you like to buy or build a new house? In addition to these, there are several other considerations that can help you and your financial professional develop an appropriate plan.

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Inflation Doesn't Retire When You Do

The need to outpace inflation doesn't end at retirement; in fact, it becomes even more important. If you're living on a fixed income, you need to make sure your investing strategy takes inflation into account. Otherwise, you may have less buying power in the later years of your retirement because your income doesn't stretch as far.

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How Can You Fight the Effects of Inflation?

Inflation is one of the reasons people--especially those in their 20s and 30s--are often surprised by the amount they will need to save for their retirement. Inflation pushes future costs higher: as a result, the nest egg needed to produce the income you want would need to be bigger.

There are several ways to help combat the ravages of inflation on the value of your savings.

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What Is Inflation and Why Should You Care About It?

Prices: Up, up and away

Inflation occurs when there is more money circulating than there are goods and services to buy. The process is like trying to attend a sold-out concert at the last minute; there is more demand for tickets than there are tickets to go around. As a result, tickets may trade hands for far more than their stated prices. When there's a lot of demand for goods and services, their prices usually go up. The law of supply and demand produces price inflation.

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Munis and Credit Quality

Just as individuals have credit ratings, bonds also have credit ratings that represent a way to gauge the likelihood that the debt will be repaid. Bonds are rated for their creditworthiness by an independent rating agency, which issues a letter grade that indicates its opinion of the bond's quality. (Some bonds are ungraded, not necessarily because they are unsound investments but because the bond issuer feels the offering is too small to justify the cost of having it rated.)

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