WebProWorld Marketing Forum |
active website help
i bet all of you know the subject - live help tools, ie software to establish
a chat with a site visitor. So starting this thread i hope we collectively would
decide on questions:
UK Web Fulfilment - Bumper Christmas
I had a delivery today from a courier who does the fulfilment (pick, pack, delivery)
for many online retailers. He claims, he's never been so busy and is deliverign
twice the volume of last Christmas.
Blogs Can Help eBay Affiliates
A lot of people write blogs and place affiliate links on their sites, and we have
a few suggestions to help make them work better.
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11.30.05
Understanding Fixed Income
Investing: Expectations
 By
Steve Selengut
As unlikely as this sounds, experience proves it, irrefutably. Few investors grow
to love volatility as I do, but most expect it in the Market Value of their equity
positions. When dealing with Fixed Income Securities however, neither they nor
their advisors are comfortable with any downward movement at all. Most won't consider
taking profits when prices increase, but will rush in to accept losses when prices
fall.
Theoretically, Fixed Income Securities should be the ultimate Buy and Hold; their
primary purpose is income generation, and return of principal is typically a contractual
obligation. I like to add some seasoning to this bland diet, through profit taking
whenever possible, but losses are almost never an acceptable, or necessary, menu
item. Still, Wall Street pumps out products and Investment Experts rationalize
strategies that cloud the simple rules governing the behavior of what should be
an investor's retirement blankie. I shake my head in disbelief, constantly. The
investment gods have spoken: "The market price of Fixed Income Securities shall
vary inversely with Interest Rates, both actual and anticipated... and it is good."
It's OK, it's natural, it just doesn't matter, I say to disbelieving audiences
everywhere. You have to understand how these securities react to interest rate
expectations and take advantage of it. There's no need to hedge against it, or
to cry about it. It's simply the nature of things. This is the first of three
successive articles I'll be writing about Fixed Income Investing. If I don't improve
your comfort level with this effort, perhaps the next one will strike the proper
chord.
There are several reasons why investors have invalid expectations about their
Fixed Income investments: (1) They don't experience this type of investing until
retirement planning time and they view all securities with an eye on Market Value,
as they have been programmed to do by Wall Street. (2) The combination of increasing
age and inexperience creates an inordinate fear of loss that is prayed upon by
commissioned sales persons of all shapes and sizes. (3) They have trouble distinguishing
between the income generating purpose of Fixed Income Securities and the fact
that they are negotiable instruments with a Market Value that is a function of
current, as opposed to contractual, interest rates. (4) They have been brainwashed
into believing that the Market Value of their portfolio, and not the income that
it generates, is their primary weapon against inflation. [Really, Alice, if you
held these securities in a safe deposit box instead of a brokerage account, and
just received the income, the perception of loss, the fear, and the rush to make
a change would simply disappear. Think about it.]
Every properly constructed portfolio will contain securities whose primary purpose
is to generate income (fixed and/or variable), and every investor must understand
some basic and "absolute" characteristics of Interest Rate Sensitive Securities.
These securities include Corporate, Government, and Municipal Bonds, Preferred
Stocks, many Closed End Funds, Unit Trusts, REITs, Royalty Trusts, Treasury Securities,
etc. Most are legally binding contracts between the owner of the securities (you,
or an Investment Company that you own a piece of) and an entity that promises
to pay a Fixed Rate of Interest for the use of the money. They are primary debts
of the issuer, and must be paid before all other obligations. They are negotiable,
meaning that they can be bought and sold, at a price that varies with current
interest rates. The longer the duration of the obligation, the more price fluctuation
cycles will occur during the holding period. Typically, longer obligations also
have higher interest rates. Two things are accomplished by buying shorter duration
securities: you earn less interest and you pay your broker a commission more frequently.
Defaults in interest payments are extremely rare, particularly in Investment Grade
Securities, and it is very likely that you will receive a predictable, constant,
and gradually increasing flow of Income. (The income will increase gradually only
if you manage your asset allocation properly by adding proportionately to your
Fixed Income holdings.) So, if everything is going according to plan, all that
you ever need to look at is the amount of income that your Fixed Income portfolio
is generating... period. Dealing with variable income securities is slightly different,
as Market Value will also vary with the nature of the income, and the economics
of a particular industry. REITs, Royalty Trusts, Unit Trusts, and even CEFs (Closed
End Funds) may have variable income levels and portfolio management requires an
understanding of the risks involved. A Municipal Bond CEF, for example will have
a much more dependable cash flow and considerably more price stability than an
oil and gas Royalty Trust. Thus, diversification in the income-generating portion
of the portfolio is even more important than in the growth portion... income pays
the bills. Never lose sight of that fact and you will be able to go fishing more
frequently in retirement.
Read
the Rest of the Article
About the Author:
Steve Selengut
http://www.sancoservices.com
Professional Portfolio Management since 1979
Author of: "The Brainwashing of the American Investor: The Book that Wall Street
Does Not Want YOU to Read", and "A Millionaire's Secret Investment Strategy" |
