Choosing Between Junk or High-Yield Bonds

Bonds are issued by private and public entities that need long- and short-term financing. Bonds come in a large variety, with different terms, interest rates, and issuers.

Junk or high-yield bonds offer a high rate of return but are considered a risky investment instrument. High-yield bonds have a low credit rating and are assessed based on different factors such as industry or sector, financial holdings, and others. According to some finance experts, junk bonds are a valuable instrument because they supply capital to start-ups and struggling companies. There are other types of bonds such as book entry, build America, convertible, and others. Some people invest in zero-coupon bonds to supplement their income. War bonds are another variety and are issued by national governments that seek to fund wars. Government agencies, financial institutions, and corporations also issue foreign currency bonds that are denominated in other currencies. Other investment products include perpetual and covered bonds and asset-backed securities. Perpetual bonds are different from other instruments in that they have no maturity. While perpetual bonds offer a steady stream of revenue, treasury bonds are the safest investment instrument. There are also mortgage-backed and asset-backed securities as well as collateralized debt and mortgage obligations .

Investors can choose from different types of products such as bearer, lottery, municipal, and treasury bonds. They are a safe investment instrument offered by local governments. Some bonds are insured while others are not, but all of them are tax-free. Municipal bonds come with a lower interest rate than certificates of deposits and treasury bills. This is a type of long-term security that comes with a floating or fixed interest rate. Zero coupon bonds are one option for prudent investors. Bonds are a preferred investment instrument of those who are looking for steady flow of retirement income. Individuals with short-term savings goals usually choose other, riskier investments. Issues that are insured are practically risk-free. Bonds are in the form of low-interest loans that come with transaction fees of 0.5 to 3 percent. The main problem is that municipal bonds offer lower returns than stocks.

Sovereign states also offer products in foreign currencies. Foreign currency bonds have nicknames such as Samurai and Yankee. Bonds can be divided into fixed rate and floating rate instruments. Products differ when it comes to yield-to-call, credit quality, and other parameters. Issuers offer products with different market price, principal, put and call dates, etc. Those who seek to invest their money over a short period usually opt for fixed rate bonds with a term of 1 year.

References: 

Canada Banks

Bloomberg

Should You Choose Stocks Or Bonds in Investing

As a Canadian, should you invest mostly in bonds or in stocks? Should you invest everything in just stocks or just bonds? This is a difficult question when it comes to investing. Experts advise that you should invest a minimum amount in bonds, with stocks being a main part of your portfolio. It is always best to have a bit of both than to put all your eggs into one basket. Portfolio diversification is a major consideration when investing.

From this perspective, the amount you invest and the type of investment instruments you include in your portfolio depend on the risk you are willing to take as well as on your individual circumstances. If you are risk-averse, you should not make risky investments. In addition, if you do not have enough cash, it is best not to invest. Persons prone to anxiety and panic attacks should not take excessive risks as well. Regardless of what you decide to invest in, protecting the bare minimum is important - this is the money you will need post retirement. You can invest the money that is above and beyond this.

If you choose to invest your money in bonds, opt for ones with a term of no more than five years. Toronto municipal bonds featured with longer terms entail more risk, and they may lose value more easily.

Among the factors underlying the decision how much to invest and what in are your minimum required monthly income, taxes, expected pension benefits, and the equity you will have in your home when you retire. You should not expect growth in value - use the current market information.

How do you calculate expected returns on Canadian bonds? You should take inflation and the interest rate into account. If inflation is 3 percent while the interest rate is set at 6 percent, your return will be 3 percent (simply subtract the second from the first.

As for stocks, you need to ask yourself how much money you can really afford to lose. Then multiply this amount by two. You should never invest more than that in stocks. The risk is higher with stocks, but so are the purported gains. With bonds, returns are between 3 and 4 percent, while with stocks, these can be five times higher. Yet, you may lose as well win. Finally, in times of market instability, it is not important what you choose to invest in, right?

Investing in residential real estate is an alternative to investing in stocks and bonds. Investing in real estate is in fact a major investment instrument. Home owners mostly buy property as their primary residence. It should be noted, however, that owners do not always have the full purchase price of the property they buy, and financial companies extend loans for the purchase. In comparison to other types of real estate, residential real estate carries the lowest risk. This useful guide to Canadian bonds has detailed information on penny stocks.

Forex Account Types

Forex stands for foreign exchange market, with a variety of participants being involved in financial transactions. Among them are banks, central banks, and commercial companies which trade currencies in the financial markets. Other players include hedge funds, retail foreign exchange traders, and investment management firms.

The top banks participate in the currency market daily, and only part of the trading takes place on behalf of customers. The bulk of trading, however, takes place for the benefit of banks' own accounts. Central banks fall into another group of participants in that they aim to control interest rates, inflation, and the money supply. For these reasons, central banks have official and unofficial rates for their currencies. Stabilizing the market is one of the main goals of central banks. They do this by using considerable amounts from their foreign exchange reserves. Generally, central banks have a major role to play on the currency markets in London, Tokyo, and New York. Other forex locations exist as well, but these are considered the most important ones.

Retail foreign exchange traders fall into another category of participants that use retail forex platforms and participate on the foreign exchange market indirectly, using the services of brokers and banks. The share of retail foreign exchange traders is insignificant, making for just 2 percent of the whole volume. The National Futures Association has announced that the volume of retail forex trading has increased considerably, especially over the last couple of years. At the same time, forex fraud is also a more prominent phenomenon. Retail forex traders work with two main types of trading desks. One of them is the non-dealing desk, with trading in the hands of the proprietary. Foreign exchange trading takes place on this desk. The dealing or trading desk is the second desk, and off-exchange trading is carried out there.

Investment management firms are another player on the foreign exchange market. Endowments, pension funds, and other entities have large accounts, which are managed by investment management firms. Trading on the currency market is done by carrying out transactions in different foreign securities. Currency overlay operations are also carried out to generate profits and reduce risks.

Hedge funds are privately managed funds with an aggressive approach, which employ sophisticated strategies to generate profits. Hedge funds employ advanced strategies, among which short, long, derivative, and leveraged positions in the international and domestic markets. Since the 1990s, hedge funds have been known for aggressive currency speculation. Controlling billions in equity, hedge funds can easily play against the efforts of any central bank to support certain currency. It should be noted that more than 70 percent of transactions on the currency market are speculative.

Finally, commercial companies also trade on the currency market with the aim of increasing the holding of stockholders. Given that commercial companies trade a relatively small volume, unlike speculators and banks, their transactions do not have much of a short-term impact on exchange rates. At the same time, currency rates are influenced by cash flows in the long run.

Finding information about trading can be a breeze, just visit forex brokers website.

Canadian Mutual Funds And The Investor

Are you interested in Canadian Mutual Funds? The concept of mutual funds is simple. The fund is made up of money from several investors. The money is then invested by a funds manager. The money is invested in stocks or other financial securities.

Investing in mutual funds is no different from other investments as far as having a short and long term goal. The investor, who does not have a goal, or objective, will not be as successful as the one who does. Also, an investor should not be investing money he should use for the necessities.

In other words, it is not wise to invest money that one cannot afford to lose. The investor should also understand the level of risk. Money that is left over after the bills are paid, is the funds that the investor should use.

No investment is risk free, but some are less risky than others. Usually the investments that have the largest profit margins are the riskiest. The conservative investments might not be as profitable, but they are less risky. There are different types of mutual funds to invest. There is the growth mutual fund which will invest mainly in the stock of a well established company and is intended for long term capital gains.

The income mutual fund invests money in debt securities. An example of this would be an investment in government bonds. The risk is dependent on the credit rating of the debt security. Some investors favor this fund because of its high yield. Some investors like to have a more balanced portfolio and opt for a mix of growth funds and income mutual funds.

There is the no load mutual fund. Investors who do not want financial advice opt for this type. There are no commissions to be paid. The total amount of the investment goes into the fund.

But there are those who need financial advice. They choose the load mutual funds. They have to pay commissions, but they get financial advice. The benefit of the mutual fund is the same whether it is a load or no load fund. The advantage is that there are a pool of investors to share the cost.

But many feel that they are safer with other investors. The bottom line is that the market dictates profit and loss. An investor who has a good handle on the market will do better than the one who does not understand the market trends.




Disclaimer: This article is provided for educational and informational purposes only and should not be considered a substitute for professional and/or financial advice. The information found in this article is provided "AS IS", and all warranties, express or implied, are disclaimed by the author.