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Investing 101 Archive

  • When it comes to the holy trinity of investing, (stocks, bonds and cash) it seems the rules and nuances of investing in the bond market often are the most baffling for newcomers.

    For this edition of Investing 101 we are going to demystify the bond market and have put together five quick tips to help you get your head around buying bonds.

    1. What is a Bond?

    Simply put, a bond is a loan. Just like a mortgage, bonds involve a lender and a borrower, and also come with a predetermined interest rate and maturity date that never changes. And just like you and me, bond issuers also have credit scores (or ratings) that make it more or less expensive for them to borrow depending on the likelihood that the lender will be paid back. Bonds typically are sold in $1,000 increments and have a face value (or par value) in the same amount.

    2. How Do Bonds Work?

    A bond is essentially a contract between a buyer and a seller in which the borrower (or issuer) agrees to make semi-annual (twice a year) payments to its creditors (that's you) until the agreed upon term is up (the maturity). At that point you get your original investment (or principal) back in one big lump.

    The amount of these payments is determined by an interest rate (or coupon) that is fixed for the life of the bond or loan. You may have heard of the term "fixed income" investments before, well now you know it's because your Treasury bond, come hell or high water, will pay the exact same income, a feature that is particularly adored by retirees.

    Read More »from Understanding the $38 Trillion Bond Market in 5 Easy Steps
  • It has been said that behind the President of the United States, the chairman of the Federal Reserve is one of the most powerful people in Washington, if not the world. While other institutions may be older, when it comes to raw power and impact, few can match the scope and clout of the country's 100 year-old central bank.

    For this installment of Investing 101, we take a look inside this esteemed institution for a look at how it works and what it does.

    What is the Federal Reserve System and why does it exist?

    Created by the Federal Reserve Act of 1913, the Fed, as it's known, has evolved and grown over the years but its primary structure, role and objective remains the same. Based in Washington but also represented nationally via a dozen regional reserve banks, the Fed's primary job is to ensure that our monetary and financial system are safe, flexible and stable.

    To do so, the central bank focuses on four general areas: the supervision and regulation of banks, the administration of monetary policy, mitigating risk and crisis, and providing payment services to commercial banks, the government and official foreign institutions.

    How does the Fed work?

    The Fed is overseen by a seven-member Board of Governors, which is headed by a chairman (currently Ben Bernanke) who is appointed by the President every four years, as well as the presidents of the twelve regional banks who are responsible for activity in their districts.

    Read More »from How the Federal Reserve Safeguards the Financial System
  • One of the most ominous market indicators has reared its ugly head this summer, flashing warning signs about the health of the U.S. stock market. The Hindenburg Omen is a highly technical indicator used to predict a major market crash.

    It’s named after the infamous German aircraft that went up in flames in Lakehurst, New Jersey on May 6, 1937. The Hindenburg flight originated in Frankfurt, Germany and was generally considered a smooth ride, until unforeseen elements sparked a fire that quickly engulfed the craft while landing. Thirty-five of 97 passengers were killed. The tragedy, displayed on news reels across the world, destroyed public confidence about air travel. The exact cause remains a mystery to this day; much like its use as a stock market indicator.

    There are varying definitions for what triggers the Hindenburg Omen. In this installment of Investing 101, we’re laying out the basic premise.

    By all definitions, the NYSE Composite (^NYA) is used as the benchmark. It’s an index consisting of all common stocks listed on the New York Stock Exchange. Among the 2,000-plus listings, market analysts monitor four criteria that trigger a signal. Here they are in no specific order:

    Read More »from Hindenburg Omen: Very Ominous, Highly Technical Warning Sign Returns

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ABOUT INVESTING 101

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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