Tax-Real Estate

Are Oil ETFs Worthwhile Investments?

Taxes-Real Estate — Wed, 03 Mar 2010 23:32:30 PST

Oil ETFs are a worthwhile investment for investors who are looking to benefit from adding a commodities component to their portfolios without necessarily investing in oil or oil futures directly. Being in an oil ETF reduces some of the risk exposure to the investor, relative to being in oil. It should be understood however that all investing involves risk and investing in any exchange traded fund, or ETF, can result in possible loss, including the loss of principal investment amount.

Exchange Traded Fund Objectives

Exchange traded funds facilitate the receipt of returns that are designed to mirror those of the index that the follow. In the case of oil ETFs the underlying index for different oil futures would be the ETFs basis. ETFs emulate returns and may from time to time outperform the underlying index in which it mirrors. It is also possible for the ETF to do worse than the returns of its underlying index as well as ETFs are subject to the same loss potential as any investment.

Decision to Invest

The decision to invest in an oil ETF is based on the investment goals and objectives that you have as an investor and nothing else. Depending on what you are looking to accomplish with your investment capital, oil ETFs may help you accomplish that. The returns for most relative oil indexes are relatively good although it should be noted that the index itself is not directly invested in the underlying oil futures. An ETF it should be understood only tracks performance.

Most advisors will tell their clients that to achieve diversification in a portfolio an investor should consider all types of assets. Oil as a commodity asset has a higher return than equity securities like stocks and fixed income securities such as treasury and corporate bonds. This higher return is balanced with a higher loss potential. As such, when considering adding a commodity, such as oil futures to the portfolio, having an ETF may be an easier and less costly way of doing so without all of the necessary volatility risk.

Investment Considerations for Oil ETFs

Simply putting an oil ETF into a portfolio based on the return is not the way to approach this as an investment strategy. Adding oil ETFs only make sense if such investing compliments your overall investment strategy. If it does not, you should consider alternative types of investments that lower your risk exposure but also gives you the diversification that you are seeking overall. Otherwise you will include an asset class that will do nothing but increase your risk exposure relative to your investment strategy.
To consider oil ETFs you should review your investment plan. In the plan your objectives and goals should be clearly stated and your assets arranged in a way that make sense and will help you achieve your plan. If you are without an investment plan, this is the first thing you should accomplish before considering purchasing oil ETFs.

How to Cash a Savings Bond

Taxes-Real Estate — Wed, 03 Mar 2010 22:59:32 PST

Savings bonds are popular investment tools, and often given as gifts for children's birthdays or graduation. Because these are widely used investments, cashing them in is very simple. Most financial institutions will cash in your bonds for you.

If the savings bonds is in your name, it is quite simple to cash them in. You can take them into any bank and provide proper identification along with the bond. As long as they are less than one thousand dollars in value, they will cash them. If your bonds are greater in value, you can take them to a bank where you have a checking or savings account and cash them in. The United States treasury also has accounts you can open, buy bonds and redeem them, all on-line.

Bonds For a Minor

Savings bonds are popular as gifts for minors. Cashing them in before they are eighteen can be done by the minor's parents. Again, take them to a local bank and show identification. Sign the back of the bond while you are in the bank, so you know what info the bank wants printed. Often, you simply state your name, and your relationship to the minor.

Recovering Your Lost Government Savings Bonds

Taxes-Real Estate — Wed, 03 Feb 2010 05:30:00 PST

Government savings bonds represent one of the safest methods of investments in the world. You are basically investing in the federal government and you are receiving a guaranteed rate of return. As long as the country is still in existence, you should receive the rate of return that you have been promised. While they are not usually high-earning instruments, they can be a way to battle inflation over the long-term. Government savings bonds are even safer than other methods of investment in terms of being able to recover them if they are lost. If you lose your government savings bonds, there are methods that you can use to get them back. Here are a few things that you will need to do if your government savings bonds are misplaced or destroyed.

When you buy or receive government savings bonds as a gift, you should record all of the information on them. You need to write down the serial number, the date of issue, the series and the social security number and name of the purchaser. If you have all of this information, it will make recovering the lost bonds much easier for you. While this is the ideal information to have in case your bonds are lost, you do not necessarily have to have all of this to get them back if they are lost. There are other methods that you could use.

Filing the Proper Form

When you need to make a claim on a lost savings bond or multiple bonds, you need to make sure that you fill out the proper form in order to do so. The form that you need to get your hands on is Form 1048, the Claim for Lost, Stolen, or Destroyed United States Savings Bonds. You can download this form from the United States Treasury website. Fill out the form to the best of your ability. If you do not have all of the necessary information, you should still turn it in with the information that you have. It may be enough to locate the bond that you are trying to recover.

If You Can Not Locate Information

If you have the serial number of the bond, this is the easiest way for them to locate it. Each bond has their own unique serial number and they should easily be able to find it based on this. If you do not have the serial number, you should get the social security number of the person that bought it. They should also be able to look it up based on this.

Recovery Companies

If you do not want to handle this process yourself, there are even companies that offer to help you locate your bonds for you. They do charge a fee for their services, so most of the time, you should just get Form 1048 and fill it by yourself. However, they are available if you need help.

Why Invest in Series I Bonds?

Taxes-Real Estate — Tue, 02 Feb 2010 21:30:00 PST

Investing in series I bonds has become popular in recent years. Savings bonds have been around for a long time and are still very popular today. However, the series I bond was started in the late 1990s as a slightly different type of bond. Using these bonds as an investment vehicle can provide you with several advantages over traditional investment tools. If you are considering whether or not to invest in series I bonds, here are a few things that you may want to consider.

The main reason that the United States government invented series I bonds was to help investors protect themselves against inflation.

When you buy a series I bond, you are getting two different rates of return. You get a fixed rate that stays the same at all times. Then you get another rate that is dependent on inflation in the economy. They will look at the consumer price index and determine exactly how much inflation has taken place. Then they adjust the second interest rate accordingly. They make these adjustments twice a year, in May and November.

With this type of investment, you know that your dollars are going to be taken care of against inflation. Not all investments can claim that and actually mean what they say.

Government Backed

A great feature about going with a series I bond is that it is backed by the government. You know that as long as the government is around when you decide to cash in the bond, you will be able to get paid on it. This provides a level of safety that other investments just cannot match.

You get a guaranteed interest rate that is paid until maturity. These particular bonds will stop earning interest after 30 years from the issue date. Up until that point, you are guaranteed the amount that is owed to you from the government if you decide to cash it in.

Liquidity

While bonds are thought of as more long-term investments, they still do give you some flexibility and liquidity. If you need to cash a bond in, you can do so whenever you want. In order to cash in your bond, you simply take it down to the local bank. They will calculate the value for you and give you the amount in cash on the spot. You will want to make sure that you do not cash it in before it is absolutely necessary, though, because there could be some fees involved. If you cash it in within the first 5 years, you will lose some of the interest that is owed to you.

The Influences of Corporate Bond Spreads

Taxes-Real Estate — Tue, 02 Feb 2010 20:09:00 PST

When pricing bonds, corporate issuers consider the potential yield a bond could have when compared to other bonds on the market. Typically, the issuer will compare the bond to both higher risk and lower risk options. For example, a corporation with an A rated bond could compare to both a treasury bond, very low risk, and a BB rated bond, very high risk. The comparison in the potential yields while accounting for the risk is called the bond spread. Bond spread, then, is determined both by risk and yields.

The first factor to take into account when considering bond spread is the comparable risk of the bond. It is hard to say whether a bond is risky or not without comparing it to other bonds. Thankfully for investors, there are several ratings companies that do this for the general public. For example, Standard & Poor's and Moody's both set ratings based on estimated risks associated with various corporate bonds. The ratings use an A, B, C system, with many levels in between. Most people will only consider bonds with a BBB rating or better, which means the bond is "investment grade." Even a corporate bond with a AAA rating, though, will be riskier than a treasury bond. Treasury bonds are the most predictable types of bonds on the market because there is essentially no risk the issuer, the federal government, will not default on the debt.

Yield of a Corporate Bond

If risk was the only factor that mattered when purchasing a bond, everyone would purchase treasury bonds. However, there are other factors of importance. Most important is the bond's yield, which is paid in interest payments or dividends. Some bonds will not make regular interest payments but instead calculate the yield at the end of the life of the bond. In any case, the estimated yield on a bond is estimated at the time of its purchase. Over time, investment houses and ratings companies create statistics on average bond yields across industries and corporations. This will be used in comparison to the general risk associated with the bond to calculate the bond spread compared to other bonds.

Bond Spread and Pricing

Bond spread tells investors a bond's estimated worth, based on the two primary factors. A bond that has a low risk level, but low potential return, may be ranked beneath a bond with slightly more risk, but far more potential return. Bond spreads, like nearly all investment rating systems, are only estimates based on past performance and market predictions. They are never set, and they may change each day or each month. However, on a given day, a bond is priced relative to its spread on the market. The prices of bonds higher on the list will be higher. This adds a third factor to the equation of selecting which bond to purchase. Ultimately, bonds across the spread can be mixed to select a well-diversified bond portfolio and spread the cost of high performing bonds with the cost of low performing bonds.

EE Bonds vs I Bonds

Taxes-Real Estate — Tue, 02 Feb 2010 20:00:00 PST

EE bonds and I bonds are relatively similar with only a few differences. Both are government-backed savings bonds that provide predictable, guaranteed earnings when purchased. They are considered some of the safest investments on the market as a result, and they both offer tax benefits.

Both bonds mature in 1 to 30 years.
A penalty equal to the last 3 months of interest is applied if you cash either bond in before five years.
Interest is only collected when both forms of bonds are redeemed.
Both offer freedom from local and state taxes.
If you use either bond interest to repay the cost of higher education, then you do not owe taxes on the earnings.

Differences between EE Bonds and I Bonds

I Bonds, meaning "inflation protected" bonds, are measured against the national rate of inflation. Over time, the bond pays a consistent base interest rate. There is a second interest rate on the bond that compensates for the rate of inflation. This means the bonds can never return lower amounts than the rate of inflation, meaning you cannot actually lose money on the investment.
EE Bonds have a single interest rate, and they are not adjusted for inflation. The single interest rate, however, tends to be higher than with I Bonds. You cannot lose your initial investment, and you cannot lose the interest you have earned. Unfortunately, if inflation is very high, there is no guarantee you will not lose earnings over time. Because you are not protected against inflation, even re-earning your initial rate may cause you to feel you have netted a loss in the long run.

When EE Bonds are Best

EE Bonds are best if you predict a relatively low inflation period. This occurs when the economy is stable, which it is most times in history. For the most part, you will earn more on an EE bond than you will on an I bond because of the higher interest rate offered. This rate is set at the current market level. So, if the market is stable to strong, the interest rate will continue to go up and you will have higher earnings. EE bonds do present slightly more risk, and they are therefore favored by higher risk investors. On the whole, though, all federal guaranteed bonds are relatively stable and low risk.

When I Bonds are Best

I Bonds are best if you predict a relatively volatile market with periods of high inflation. This typically occurs only following a recession or downturn in the market. I bond interest rates are not based on the market; they are permanently fixed. The inflation protection only means you will earn a certain amount above your existing rate in order to protect against the risk of inflation. As a result, you will not see the benefits of a very strong bond market. I bonds are incredibly safe investments. They go beyond the average safety offered by government bonds in their additional level of inflation protection. They are a good option for something like a college savings fund.

Definition of a Perpetual Bond

Taxes-Real Estate — Tue, 02 Feb 2010 18:00:00 PST

The definition of a perpetual bond is a fixed income instrument that has no defined maturity date. Most fixed income instruments pay a fixed interest rate to the holder until a specified date, and then principal is returned. With a perpetual bond, the return of principal is not automatic. As a result of this feature, these instruments are often treated as equity because they will make payments forever. This is similar to a very low volatility stock that pays a dividend. The downside of this feature is that an investor cannot decide to simply hold them until maturity in hope of receiving a lump sum payment; if they fall in value, you must sell them in the open market.

Most perpetual bonds are callable by the issuer. This means that while you will receive interest payments for as long as you hold the bond, the issuer may decide to retire the debt by calling the bond and returning the principal. While there is no specified date that this must happen, after an initial non-callable period (often 5 years), the issuer may call the bond at its discretion. This means that by holding a perpetual bond, you also face re-investment risk because the bond is only likely to be called if rates fall.

How Bond Interest Rates are Calculated

Taxes-Real Estate — Tue, 02 Feb 2010 12:30:00 PST

Bond interest rates are set on a near daily basis. The issuing organization evaluates its own financial situation to determine how much it can reasonably pay out on the bond while still sustaining growth and profits. Bonds are issued as a way for a business or organization to get a loan without seeking a lender. They use the money to grow, purchase, expand or even to pay down their own debt. They measure how much they need, how much profit they can expect, and then how much they may be able to pay. If these measurements change, the interest rate on bonds will change.

When the interest rate on a bond decreases, it is generally less desirable. It will pay less over time. This is good for you, because you are holding a bond with a higher interest rate than that being currently advertised on the market. You can sell the bond for a profit or simply collect the higher rates. You purchased the bond at a good time.

Interest rates can decrease when the organization sees a drop in profits and does not think it will be able to continue to repay high rates. However, interest rates can also drop if the market on the whole slows down. In this case, nearly any stock or bond will be paying lower dividends. The value of the stock you are holding may see no real change if this is the case.

Interest Rate Increases

If the interest rate on a bond increases, the newly issued bonds will pay more than the one you are holding. This means the bond you are currently holding will drop in value. If you were to sell the bond, you would lose money on the sale. This is unfortunate for you, and you will likely find you purchased at a bad time.

Interest rates go up for individual as well as market reasons. If the organization has very high sales, sees unprecedented growth or simply wants to sell more bonds, it can raise the interest rate of each bond. Similarly, if the national prime rate goes up, the interest rate on a bond will have to go up to overcome losses due to inflation. For that reason, interest rates on bonds generally go up over time, barring a recession.

Bond Duration

If interest rates existed in a bubble, then this would be all you need to know. However, interest rates always need to be compared to the price of the stock. Take the example of an interest rate increase to compensate for inflation. When the interest rate goes up, the price of the bond also goes up. This means the bond you are holding could be sold for slightly less than the new bonds and you may still earn a profit.

The measure of price compared to interest on a bond is called duration. Duration is the calculation of how long it will take for a bond to pay back its true value. If the duration of a bond is stable, changes in interest rate are not as important.

Dealing with the FOREX can be Devastating to the Unprepared

Taxes-Real Estate — Tue, 02 Feb 2010 04:00:00 PST

In the world of FOREX, dealing with losses can be quick and devastating. Although the opportunity for reward is there, there is also a huge opportunity for losses as well. At any given moment, the market could swing and leave your account showing a zero balance. If you are not properly prepared for the market and how it operates, you could find yourself in deep trouble.

High Leverage

The unique thing about the FOREX market is the high amount of leverage that every trader uses on a regular basis. Some common examples of leverage on a FOREX account are 100:1 and 200:1. This means that for every dollar in your account that you trade with, you are actually controlling $200. A currency pair only moves a small amount each day. Therefore, you are betting on these small moves in the prices of the currency to bring you large returns with leverage. Only a small movement in the currency pair can provide you with a large return. However, a small move in the wrong direction can actually hurt you.

Fast Movement

When you deal in the FOREX market, you have to be prepared to make quick decisions. The market at seconds speed and if you want to succeed, you have to get used to the pace. You could potentially place an order and it has moved hundreds of pips within a few minutes. This does not happen all the time, but it does happen from time to time. If you do not take the proper precautions before you place a trade, it could end up costing you a lot of money.

Stop Losses

Stop losses are a tool that you can use to help protect your account. When you place a trade, you should get in the habit of placing a stop loss on it. When you place a stop loss, the broker will close out your trade when it gets to that specified point. When you open the trade, you will place the stop loss at a certain point below where you got into the market at. As the trade moves, you can move the stop loss up or down to preserve some of your profits. This is really the only way to protect your account while a trade is open.

Proper Education

When you get involved in the FOREX market, you need to make sure that you take the time to properly educate yourself. The FOREX market is very complex and requires a lot of knowledge and a large influx of information. If you just jump into the market, you could potentially lose a lot of money along the way. Many traders will blow out their entire account with only a few trades because it is difficult to grasp quickly. You should not trade with money that you can not afford to lose completely. Also, there are accounts that you can establish to practice first. You should practice your trades extensively before investing your own money to avoid losses.

Using Savings Bonds to Fund Your Education

Taxes-Real Estate — Tue, 02 Feb 2010 02:30:00 PST

Savings bonds are one of the tried and true investment vehicles in the market today. With savings bonds, you know what you are getting because there is a guaranteed payout from the government. With such guaranteed form of payment, many people turn towards savings bonds as a way to pay for college education. The government has actually made it easier for those who want to use them to fund college. Here are a few things to consider about funding your education with savings bonds.

The main reason that many people use savings bonds to fund education is that this gives you a tax exemption. The government allows you to use the money from the bonds to pay for qualified education expenses during the year in which the money is withdrawn. This can provide you a way to save for college without having to worry about the tax problems.

The ability to use savings bonds for education funds tax-free is set forth in the Education Savings Bond Program. If you want to qualify for the program, you must have been at least 24 years old when you bought them for your children. Qualifying for this program also depends upon your income and your filing status for income taxes. Before you claim a deduction on the interest, you should consult your tax professional to see if you meet the guidelines for the program.

Inflation Bonds

One popular type of savings bond is the series I bonds. These bonds actually come with a factor that is determined by the rate of inflation in the country. The government looks at the consumer price index and determines what that portion of the interest rate should be. You get a fixed rate of interest each year along with a variable rate that moves with the consumer price index and inflation.

Safety

One big reason that many people like to use savings bonds to fund education is the safety that is involved. You are not getting any outside parties involved. You can cash your savings bonds in and then use the money to pay for college. There is no chance of your portfolio going down and losing everything that you have invested. You know that the savings bonds are going to be there for your loved one regardless of what happens in the market.

Maturation

You can cash a savings bond in early or wait until the maturation date. The savings bond earns interest only for 30 years. After that point, you do not necessarily have to redeem it, but the money is no longer doing you any good being in the bond.

Name on the Bonds

If you are buying bonds for your children's education, you will want to make sure that your name is on the bonds. You can name your children as beneficiaries, but you have to be on there. You will also want to make sure that your name is on the bonds if you are using them to fund your own education.