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Few investors grow to love volatility as I do, but most expect it in the Market Value of their equity positions. This cycle will be repeated forever. Just like at the Mall, lower securities prices are a good thing for buyers… and higher prices are a good thing for sellers. You have to understand how these securities react to interest rate expectations and take advantage of it.The mechanics are also simple. There's no need to hedge against it, or to cry about it. Fortunately, one rarely has to sell. A Municipal Bond CEF, for example will have a much more dependable cash flow and considerably more price stability than an oil and gas Royalty Trust. REITs, Royalty Trusts, Unit Trusts, and even CEFs (Closed End Funds) may have variable income levels and portfolio management requires an understanding of the risks involved. (2) The combination of increasing age and inexperience creates an inordinate fear of loss that is prayed upon by commissioned sales persons of all shapes and sizes.]Every properly constructed portfolio will contain securities whose primary purpose is to generate income (fixed and/or variable), and every investor must understand some basic and "absolute" characteristics of Interest Rate Sensitive Securities. Over the past few years of falling interest rates, Fixed Income securities have risen in price and investors (should) have realized capital gains as a result…adding to portfolio income and Working Capital. Thus, for the sake of portfolio smile maintenance, you must develop the ability to separate the two classes of securities, mentally, if not physically. Both sides of the scales contain good news for the investor… as the investment gods intended. (4) They have been brainwashed into believing that the Market Value of their portfolio, and not the income that it generates, is their primary weapon against inflation., to form behavioral expectations about) than the Fixed Income Market. Theoretically, Fixed Income Securities should be the ultimate Buy and Hold; their primary purpose is income generation, and return of principal is typically a contractual obligation. Actually, owning your fixed income securities in the most freely negotiable manner possible can put you in a unique position. They are primary debts of the issuer, and must be paid before all other obligations. Dealing with variable income securities is slightly different, as Market Value will also vary with the nature of the income, and the economics of a particular industry. The investment gods have spoken: "The market price of Fixed Income Securities shall vary inversely with Interest Rates, both actual and anticipated… and it is good. When dealing with Fixed Income Securities however, neither they nor their advisors are comfortable with any downward movement China Customized Sintered Powder Metal Pulleys Factory at all. I shake my head in disbelief, constantly. Now, that trend has reversed itself and you have the opportunity to add to existing holdings, or to buy new securities, at lower prices and higher interest rates. If I don't improve your comfort level with this effort, perhaps the next one will strike the proper chord. Thus, diversification in the income-generating portion of the portfolio is even more important than in the growth portion… income pays the bills. It's simply the nature of things.  

It has no impact at all on the contracts you hold or the interest that you will receive; neither the maturity value nor the cash flow is affected… but your broker just called with an idea. Two things are accomplished by buying shorter duration securities: you earn less interest and you pay your broker a commission more frequently. On one side we have a number that represents the Current Market Value of your Fixed Income portfolio. Bonds are more like the classics and old time rock-and-roll…much more predictable. Just visualize the Scales of Justice, with or without the blindfold. (3) They have trouble distinguishing between the income generating purpose of Fixed Income Securities and the fact that they are negotiable instruments with a Market Value that is a function of current, as opposed to contractual, interest rates. Buyers are entitled to current rates, and the only way to provide them on an existing security is to sell it at a discount.e. Absolutely nothing can (or should) be done about it.Here's a simple way to deal with Fixed Income Market Values to avoid shocks and surprises. For example, if your July 2005 Market Value fell, it was because of higher interest rates not lower stock prices. Typically, longer obligations also have higher interest rates. More recently, the combination of higher rates and a weaker Stock Market has been a Double Whammy for portfolio Market Values, and a double bonanza for investment opportunities.

They are negotiable, meaning that they can be bought and sold, at a price that varies with current interest rates. Think about it. (The income will increase gradually only if you manage your asset allocation properly by adding proportionately to your Fixed Income holdings. This is the first of three successive articles I'll be writing about Fixed Income Investing. Still, Wall Street pumps out products and Investment Experts rationalize strategies that cloud the simple rules governing the behavior of what should be an investor's retirement blankie.The critical relationship between the two classes of securities in your portfolio, is this: The Market Value of your Equity Investments and that of your Fixed Income investments are totally, and completely unrelated.There are several reasons why investors have invalid expectations about their Fixed Income investments: (1) They don't experience this type of investing until retirement planning time and they view all securities with an eye on Market Value, as they have been programmed to do by Wall Street. It's like magic, or is it justice. Each Market dances to it's own beat. Stocks are like heavy metal or Rap…impossible to predict. Most won't consider taking profits when prices increase, but will rush in to accept losses when prices fall. . [Really, Alice, if you held these securities in a safe deposit box instead of a brokerage account, and just received the income, the perception of loss, the fear, and the rush to make a change would simply disappear. Most are legally binding contracts between the owner of the securities (you, or an Investment Company that you own a piece of) and an entity that promises to pay a Fixed Rate of Interest for the use of the money. These are negotiable securities that carry a fixed interest rate.I've come to the conclusion that the Stock Market is an easier medium for investors to understand (i. Defaults in interest payments are extremely rare, particularly in Investment Grade Securities, and it is very likely that you will receive a predictable, constant, and gradually increasing flow of Income. You need to act on these things with each cyclical change. Never lose sight of that fact and you will be able to go fishing more frequently in retirement. If the world expects interest rates to rise, or even to stop going down, "up" arrows are added to "i" and the Market Value side moves lower… the current scenario. As unlikely as this sounds, experience proves it, irrefutably.  

These securities include Corporate, Government, and Municipal Bonds, Preferred Stocks, many Closed End Funds, Unit Trusts, REITs, Royalty Trusts, Treasury Securities, etc. On the other side, we have a small "i" for interest rates, and "up" or "down" arrows that represent interest rate directional expectations."  It's OK, it's natural, it just doesn't matter, I say to disbelieving audiences everywhere. The longer the duration of the obligation, the more price fluctuation cycles will occur during the holding period. Comparing your portfolio Market Value with some external and unrelated number accomplishes nothing. You have no increased risk from a reduction in security prices, while you gain the ability to add to holdings at higher yields. I like to add some seasoning to this bland diet, through profit taking whenever possible, but losses are almost never an acceptable, or necessary, menu item.So, from a "let's try to be happy with our investment portfolio because it's financially healthier" standpoint, it is critical that you understand changes in Market Value, anticipate them, and appreciate the opportunities that they provide.) So, if everything is going according to plan, all that you ever need to look at is the amount of income that your Fixed Income portfolio is generating… period

Posté le 04/11/2020 à 04:27 par steelpart

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