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Investing 101 Archive

  • The only time most investors hear about municipal bonds is for negative reasons, be it the bankruptcy of Stockton California or the forecasting of local meltdowns. According to Mark Martiak of Premier/First Allied Securities, municipal bonds, or munis, shouldn't be given such a bum rap. In this episode of Investing 101, Martiak explains the risks, the rewards, and how to best invest in munis.

    Benefits of Investing in Muni Bonds

    Step one is obviously understanding what munis are. "Municipal bonds are fixed income investments that are tax exempt," explains Martiak. Breaking it down means that the income stream from munis is set, or fixed, at a constant rate. If you buy a bond yielding 5%, that's what you get: 5%. The rate is fixed regardless of what happens to the underlying bond.

    As for tax exemption, municipals are exempt from federal taxes, increasing their effective yield. Using 5% as an example, if that bond were subject to a hypothetical 20% tax rate, the real yield would only be 4%. Muni yields are understated compared to a dividend stream.

    Martiak says munis give investors a sense of ease with their investment from knowing the coupon will stay the same — barring a default. The price of the underlying bond may change, but your yield doesn't change, regardless of price.

    Understanding Muni Bond Risks

    Municipalities can fail, though not as often as you may be led to believe. "Historically the default rate in most States and municipalities has been very minimal," says Martiak. The best way to hedge this risk is through the old standbys: diversity and research.

    Read More »from Muni Bonds 101: Risks & Rewards
  • It's rough out there! While the latest U.S. recession —also referred to as The Great Recession—spanned from December 2007 to June 2009, many Americans are still feeling the pain from the worst economic downturn since the Great Depression. A recent study from Yale University shows the recession hit even harder in particular areas of the country, and the Federal Reserve released staggering numbers showing the wealth of the average family plunged 40% from 2007 to 2010.

    Although the U.S. economy is recovering it has been a slow, cumbersome rebound, and particularly unnerving for Americans nearing retirement. Recently-named AARP financial ambassador Jean Chatzky has six smart money moves to make in this scary economy.

    1. Draw a Road Map

    Chatzky's first recommendation is to make a plan. Set your money goals and aspirations by asking yourself the following questions:

    Where [financially] are you right now?

    Where do you want to go?

    How much money do you need to save regularly to get there?

    "You can't be too aggressive in the amount you think you're going to earn on your money these days because it causes us to under save, which is a chronic problem in America," she warns. "So be conservative and save enough."

    2. Refinance!

    Interest rates are at historic lows and the Federal Reserve intends to keep it this way through at least 2014. You need to take advantage of the low rate environment, even if you're not a homeowner.

    "You've got to expand beyond the mortgage," says Chatzky. "Car loans, student loans, credit cards, whatever is in your portfolio of debt, refinancing it to a lower rate is just money in your pocket."

    Read More »from Smart Moves in a Scary Economy
  • Are Junk Bonds Right for You?

    Even if you've never invested in them, chances are you have at least heard of the term ''junk bonds'' before, be it from the 1980s and Michael Milken, in movies like Barbarians at the Gate, or as part of so-called leveraged buyouts or LBOs, where investors pile a lot of debt onto the company they're buying. Yes, the junk bond, or high-yield bond, is truly a part of the fabric of American capitalism. But are they the right investment for you? That's the focus of the next installment of Investing 101.

    What Is a Junk Bond?

    The basic premise of a junk bond is predicated on the perceived ability of the borrower to repay a loan. Just like individuals have credit reports and FICO scores that affect their borrowing costs, so do businesses; and the lower the risk of default, the lower the interest rate you will be required to pay to get a loan and vice versa.

    The difference is in the corporate world, credit ratings come in letter-grade form, rather than a numerical score, via ratings agencies, the biggest and best known being Standard & Poor's and Moody's. As the chart from Alphahunt below shows, the scale runs from AAA/Aaa to D, with any bond rated less than BBB/Baa falling into the junk or high-yield category.

    Alphahunt Ratings Chart

    Read More »from Are Junk Bonds Right for You?


(54 Stories)


Breakout’s Investing 101 helps you gain insight on money management and trading. Whether you’re managing your own retirement account, just beginning, or an advanced investor in need of a good refresher, Investing 101 will help you learn, grow, and keep you informed of the basic steps to effectively manage your money. Expect investing tips that focus on trading strategies, asset allocation, and portfolio management.

Investing 101

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