Investment Articles

What most people think about when they hear the term high yield investments is a low-rated bond, known to most as a junk bond. Junk bonds are from companies that have to pay higher when they borrow money. Just like the average consumer that has financial troubles and pays a higher rate on a credit card, the same is true for companies with a bad credit report. When they issue a bond, the company is really applying for a loan with anyone that wants to purchase their bonds. The people that purchase low-rated, high yield bonds are risking their money in the hope of a better return. If the company is in dire financial straights, no matter how high the interest rate, the bonds simply won’t sell well.

The junk bond market can be quite lucrative if you’re educated in the ways of bonds. For instance, most people simply see bonds as a means of making interest. Stock market investors, in particular, find bonds quite boring especially if they love the thrill of the market fluctuations. These investors simply don’t know much about bonds, in particular, junk bonds. Many online investing sites often neglect information on bonds and focus strictly on equity products.

After September 11, 2001, the market crashed. Several industries felt harsh financial effects from the attack on 9/11 and one of them was the airline industry. United Airlines, already feeling financial pain, now had loss of revenue adding to the pinch when the government stopped flights. They were in a precarious position, similar to many other airlines. However, Frontier airline was a cash cow as well as some others.

Bonds go up and down in price depending on their financial rating, length of time to maturity and interest rate. At the time following 9/11/2001, not only did the stocks for major airlines drop, so did the bonds. In some cases, the bonds discounted as much as 50 percent for airlines. This means that if you bought a 50 percent discounted bond with an interest rate of 5 percent, you would receive a 10 percent return at every annual interest interval. If the price of the bond went up, you could also receive a capital gain by selling it. This made investing in high yield bonds from fiscally sound airlines an attractive investment.

As time passed, United did file chapter 11 and US Airways also does, but many of the lower priced bonds for airlines returned to the price adjusted for length of time and interest rate. People that knew the financials of the different airlines fared well, while people that risked their money on United or US Airways lost money. The key is looking at the financials of the company before you buy the bond. High yield returns are risky and even if they’re bonds, you can lose all your money or most of your money.

During good economic times, the price of high yield bonds increase. Bonds that provide a higher interest rate simply are more popular. Even if the company has a lower rating, during times of economic prosperity, most people feel the companies won’t fail.

During times when the economy drops in the cellar, it raises concern over credit ratings of companies. The high yield bonds discount deeply and are often a bargain for the seasoned investor. The person occasionally doing online investing, however, should not use these types of investments. There is a high risk to high yield investments. Just like any other investment vehicle, the higher the yield, the more risk you face.

Alex Roca is the creator, founder and editor of http://smart-personal-finance.com – a popular website that provides free education on personal finance. For more information on money management, investing, budgeting, saving, and retirement visit http://smart-personal-finance.com

Before investing your hard-earned money into a standby letter of credit, it is important to understand what they are and how they differ from traditional ones. Letters of credit, regardless of whether they are standard or standby, are not uncommon and are used most often for large contracts. Financial institutions issue standard letters for international trade and commercial trade contracts. Almost without exception, standard letters are irrevocable and require all parties to agree on any changes before they can be made. Standard letters are useful in deals that involve high-value or large amounts of money.

A standby letter, on the other hand, is more like an insurance policy for the supplier in a trade agreement or for a deal’s beneficiary. The bank that issues a standby letter agrees to repay any and all funds in the event that the applicant is unable or unwilling to. These types of letters represent a last resort of sorts and can only be used if the applicant has failed to meet all of the payment terms set forth in the contract. Because payment is guaranteed by the issuing bank, standby letters represent relatively low risk investments.

The purpose of a letter of credit is to ensure that the beneficiary receives the money that is due to them for a product or service. The person or entity that is purchasing the services or goods is referred to as the client. The client’s bank is the one that actually issues a letter of this kind. Most letters require the company or person receiving the money, also known as the beneficiary, to produce documents in order to collect payment. This not only makes it easier to keep track of the funds being sent and received, but ensures that proper payment is being made according to the agreement with in the letter.

Most banks are able to issue these letters and any fees that come from one will be applied to the client’s account. Both standby and standard letters are issued as assurances that the individual or company selling services and products will receive the money due to them. Investment in standby letters are not necessarily the most high yield investments an individual can make, but since they are generally fairly low risk they can offer a popular alternative to other investment options. For more information on investing in investment opportunities usually or normally not found in the marketplace, click here!

Sean Johnson is an Investment Advisor for http://www.inquest.biz an Investment Referral Service for investors requesting information on specific investments.

You have worked hard to earn your money. Now it is time to use discipline and a good plan to grow your portfolio of long-term investments. A four legged stool is sturdy and will resist tipping over causing injury. We should ask for the same characteristics in our investment discipline.

Investing in stocks is a lot like investing in real estate. There are rules, if you ignore the rules you pay the price.

On real estate it is location, location, location.

In stocks it is:

Allocation Diversity.
Trailing Stop Losses.
Position Sizing.
Watch Expenses.

1. Allocation Diversity
Warren Buffet makes a salient point. You cannot predict where the next boom or bust is going to occur. Who would have expected the personal computer to change the way we live? Who knew that tech was going to blow up in 2001? Who expected oil to go to $147, and then crash to $30 within 8 months? You get the point, looking back it is easy to see these made sense and should have been predictable. But they are not, so we need to spread our investments over different sectors of the economy. This keeps us from losing too much in a crash of an industry like oil or financials in the last few months. We want to be exposed to as many different sectors as possible. No one can predict winners and losers with certainty. Some may make an impressive call, but not consistently.

2. Trailing Stop Losses
When we buy a stock, we expect it to increase in value and pay us handsomely. We set a trailing stop loss on the stock the day we buy it. The highest closing price after we buy a stock raises the trailing stop loss. If the stock ever drops 20% from our purchase price, or subsequent higher closing price, we sell it. We take our money and profits to invest in another great company.

3. Position Sizing
This goes hand in hand with allocation diversity. What good would it do to be diversified but the positions were different sizes. My luck, the biggest position would be in a sector that suffered and my smallest position would be in the very best sector. It is important to size each of our positions approximately the same size in dollar amounts. Once a year, generally in December, we “re-balance” our portfolio. We sell some of the high flyers and add to the sectors that have decreased in value. Thus we rebalance each of our positions to make each approximately the same size. We may pay taxes on some of the stocks that we sell at a gain, but a small amount of taxes is better than holding and ending up with a loss. We recommend that each position be 5% of the total portfolio. This means you will be fully invested with 20 stocks.

4. Control Expenses
We recommend you use a discount broker, so you transaction cost is low. You can enter your orders from your home, in the evening, and save a lot of money over “calling in your orders” We like to buy quality companies that we can hold onto for the long haul. We want long term holdings, watching our dividends grow. We don’t want to pay the government just because we saw some other company we liked better. Long term capital gains are better than regular income, but no taxes at all are even better! You should try to put your high yield investments in a tax sheltered account.

John Dalt writes about the stock market daily for online investors. His MarketToday e-letter is sent to subscribers of galtstock. You can subscribe at http://www.galtstock.com

You have worked hard to earn your money. Now it is time to use discipline and a good plan to grow your portfolio of long-term investments. A four legged stool is sturdy and will resist tipping over causing injury. We should ask for the same characteristics in our investment discipline.

Investing in stocks is a lot like investing in real estate. There are rules, if you ignore the rules you pay the price.

On real estate it is location, location, location.

In stocks it is:

Allocation Diversity.
Trailing Stop Losses.
Position Sizing.
Watch Expenses.

1. Allocation Diversity
Warren Buffet makes a salient point. You cannot predict where the next boom or bust is going to occur. Who would have expected the personal computer to change the way we live? Who knew that tech was going to blow up in 2001? Who expected oil to go to $147, and then crash to $30 within 8 months? You get the point, looking back it is easy to see these made sense and should have been predictable. But they are not, so we need to spread our investments over different sectors of the economy. This keeps us from losing too much in a crash of an industry like oil or financials in the last few months. We want to be exposed to as many different sectors as possible. No one can predict winners and losers with certainty. Some may make an impressive call, but not consistently.

2. Trailing Stop Losses
When we buy a stock, we expect it to increase in value and pay us handsomely. We set a trailing stop loss on the stock the day we buy it. The highest closing price after we buy a stock raises the trailing stop loss. If the stock ever drops 20% from our purchase price, or subsequent higher closing price, we sell it. We take our money and profits to invest in another great company.

3. Position Sizing
This goes hand in hand with allocation diversity. What good would it do to be diversified but the positions were different sizes. My luck, the biggest position would be in a sector that suffered and my smallest position would be in the very best sector. It is important to size each of our positions approximately the same size in dollar amounts. Once a year, generally in December, we “re-balance” our portfolio. We sell some of the high flyers and add to the sectors that have decreased in value. Thus we rebalance each of our positions to make each approximately the same size. We may pay taxes on some of the stocks that we sell at a gain, but a small amount of taxes is better than holding and ending up with a loss. We recommend that each position be 5% of the total portfolio. This means you will be fully invested with 20 stocks.

4. Control Expenses
We recommend you use a discount broker, so you transaction cost is low. You can enter your orders from your home, in the evening, and save a lot of money over “calling in your orders” We like to buy quality companies that we can hold onto for the long haul. We want long term holdings, watching our dividends grow. We don’t want to pay the government just because we saw some other company we liked better. Long term capital gains are better than regular income, but no taxes at all are even better! You should try to put your high yield investments in a tax sheltered account.

John Dalt writes about the stock market daily for online investors. His MarketToday e-letter is sent to subscribers of galtstock. You can subscribe at http://www.galtstock.com