The First Thing Every Bond Investor Needs To Consider
The First Thing Every Bond Investor Needs To Consider (Morningstar)
In explaining his approach, Tom Dugan, associate director of fixed income with Dodge & Cox, tells Morningstar that one way for investors to think of this as making a loan. So the main thing to consider is the creditworthiness of the issuer. "First and foremost you want to assure yourself that this is a loan that can be repaid. So understanding the creditworthiness characteristics of the issuer is paramount in terms of selecting securities."
In this space there are some issuers, like the U.S. Treasury that investors don't need to worry about. "But there are credit issuers where that's the fundamental point of distinction, and we spend a lot of time trying to understand companies, their fundamentals, and their ultimate ability to repay that bond's interest and principal. So that's an absolutely key characteristic in terms of security selection."
For government-guaranteed securities however there can be other issues. "Government-guaranteed mortgage-backed securities have cash flow timing issues because of the prepayment option that a mortgage borrower has, that portions of the bond could be prepaid next month or 10 years from now. And so assessing the durability of cash flow and the predictability of those payments is the paramount concern for issues like that."
How Advisors Should Go About Bringing In Young Clients (The Wall Street Journal)
The financial advisory industry is facing a generational shift in clients and advisors. But it makes sense to look for younger clients as more baby boomers retire. The problem is it isn't always cost effective to take on young new clients, though they need them in the long run to be sustainable. "The handiest pool of young new prospects is among clients' children and even grandchildren, and having a separate, younger adviser take them on can make sense on a number of levels," writes Corrie Driebusch at the WSJ. Driebusch also thinks its important not to get bogged down with just current assets. They should also factor in " future prospects, both for earned income and an inheritance …but looking too far down the road can be dangerous."
To Get More Female Planners We Need To Start Early (Financial Planning)
There is a growing demand for financial planning services but not enough planners, especially female planners, to meed this need. Only 23% of the 70,000 CFP professionals are women, writes Nancy Kistner, chairwoman of CFP Board's Women's Initiative, in Financial Planning. To encourage more women to take up this profession though, Kistner thinks it's important to start early.
"Among other things, the research shows that we need to start presenting financial planning as a desirable career path for women at a young age -- whether it's at Girl Scout meetings, in school or, most importantly, at home," Kistner writes. "That's how I was initially exposed to what has been a terrific career."
What Lies Ahead For Interest Rates (Vanguard)
The Fed is well into tapering its asset purchase program that is now down to $55 billion in asset purchases a month. The big question on everyone's mind is what's ahead for interest rates which have been held low for some time now. Joe David, chief economist at Vanguard thinks the Fed will move to raise rates in the second half of 2015.
"So we're critically focusing on wage growth. And so, if anything, inflationary pressures are very mild and tepid, again something we've talked about for several years," he says. "So I think it's a good thing we're talking about ultimately the Federal Reserve potentially raising rates, but that is neither imminent nor is it likely to be very rash when they start to raise rates."
"They may raise rates to perhaps 1%. They may pause and reassess. Real rates will still be low, which means adjusted for inflation, and it may be another two years before they normalize policy to perhaps even 3%. So I think these concerns of rapid rises in interest rates, that's not what keeps me up at night."
This Chart Shows Exactly How Not To Invest (StockTwits Blog)
Stefan Cheplick at StockTwits Blog thinks every market participant needs to be disciplined and needs to have a plan. Without these he thinks investors could find themselves "subject to a vicious journey like this."
