It isn't how much you make
. . .It's how much you keep!
Archive for Bonds
Your asset allocation strategy represents your personal decisions about how much of your portfolio to allocate to various investment categories, such as stocks, bonds, cash, and others. Some of the advantages of an asset allocation strategy include:
Providing a disciplined approach to diversification. An asset allocation strategy is another name for diversification, an important strategy for reducing portfolio risk. Since different investments are affected differently by economic events and market factors, owning various types of investments helps reduce the chance that your portfolio will be adversely affected by a particular risk type.
Encouraging long-term investing. An asset allocation strategy is designed to control your portfolio’s long-term makeup.
Eliminating the need to time investment decisions. Not only do investment professionals have a difficult time accurately predicting the market’s movements, but waiting for the perfect time to invest keeps many investors on the sidelines. With an asset allocation strategy, you don’t have to worry about timing the market.
Reducing the risk in your portfolio. Investments with higher returns typically have high-er risk and more volatility in year-to-year returns. Asset allocation combines more aggressive investments with less aggressive ones. This combination can help reduce your portfolio’s overall risk.
Adjusting your portfolio’s risk over time. Your portfolio’s risk can be adjusted by changing allocations for the different investments you hold. By anticipating changes in your personal situation, you can make those changes gradually.
Focusing on the big picture.Staying focused on your asset allocation strategy will help prevent you from investing in assets that won’t help accomplish your goals.
Your asset allocation strategy will depend on a variety of factors unique to your situation, including your risk tolerance, return expectations, investment period, and investment preferences. Please call if you’d like to discuss asset allocation in more detail.
I f you are new to investing, there is no doubt that you will make some mistakes; it just goes with the territory. However, you should familiarize yourself with these common mistakes and take steps to avoid them.
No Investment Plan — Many investors just get started in the stock market without giving any thought as to what they are trying to accomplish. It is important to have a plan that will keep you on track and help you ride out turbulent markets. Your plan should include:
Goals — Define what you are
trying to accomplish so you
can measure your portfolio’s performance in meeting your goals. You will want to be as specific as possible,
such as accumulating $1 million for retirement by age 60 or $100,000 for your child’s education within 15 years.
Risk Tolerance — Define how much risk you are comfortable with so you can determine an appropriate allocation for your assets. Stocks are riskier than bonds and will fluctuate more than other asset classes, so you want to figure out how much risk you are willing to assume. The younger you are, the more risk you can typically assume,
since you have more time to overcome any declines in your investments.
Asset Allocation — You will want to determine how to allocate your assets across different investments, such as stocks, bonds, etc.
Diversification — Once you determine your asset allocation, you will want to diversify within each individual asset class. For example, when investing in stocks, you will want to spread your funds across large-, mid-, and smallcap stocks.
Time Horizon — Don’t wait too long to start investing because time is your friend. If you
are saving for retirement, plan on 30 years of investing to meet your goals. If you don’t allocate enough time to meet a specific goal, you will need to adjust your asset allocation
to help you meet the goal within a shorter timeframe. For example, if you start saving for a child’s college education when he/she is a
freshman in high school, your assets will most likely need to be allocated more heavily to stocks in an attempt to meet that timeframe.
Stop the Noise — Be careful
with how much time you spend and
the credence you lend to the financial
media. Media noise can be hard
to turn off, but remember the best
advice is to stick to your plan.
Not Rebalancing — You will want to review your portfolio regularly and rebalance if it strays from your target asset allocation. When
you allow your portfolio to drift based on market returns, some asset classes will be overweighted at market peaks and underweighted at market lows, which may lead to poor performance. While it will sometimes feel counterintuitive to sell assets that are performing well for those that are not performing as well, your target asset allocation
will lead to a stronger performance in the long term.
Chasing Performance — Many investors are always trying to find the next big investment. They will rely on recent strong performance
as the single factor in purchasing an investment. If a certain stock has been doing extremely well for a number of years, you should probably have invested in it years ago,
since it may be nearing the end of its high performing cycle.
When an investment is doing extremely well, many people will not sell and take the profit because they are afraid that it will continue
to increase in value. But there is also the risk that it will go down in value.
You should also consider identifying a target value at which you will sell your stocks. This will help take the emotion out of your sell
decisions.
Becoming Too Emotional — It’s hard not to get emotional when the market encounters a severe correction, but the investors who have
the ability to remain calm during these times more consistently outperform the market. If you start selling off investments at the worst
possible time, you may then be out of the market when it starts to rebound.
While it is easier said than done, you have to build a resistance to those things that create emotional triggers so you don’t make bad
decisions. Thoughtfully consider new information, don’t just follow the crowd, and make decisions when you are calm based on your long-term plan.
If you would like more information or to discuss this in more detail
Representatives are registered through, and securities are sold through Nationwide Planning Associates, Inc., Member FINRA/SIPC, located at 115 West Century Road, Suite 360, Paramus, NJ 07652. Investment advisory services are offered through NPA Asset Management, LLC. Insurance sold through licensed NPA Insurance Agency, Inc. agents. Frank is registered in NJ, NY, PA, FL, CT, CO, NC, OH and RI. He is also licensed for life and health insurance in NJ, NY, FL, OH and RI. The presence of this web site on the Internet shall in no direct or indirect way be construed or interpreted as a solicitation to sell advisory services to residents of any state other than those listed above and shall not be deemed to be a solicitation of advisory clients living in any state other than those listed above. Nationwide Planning Associates, Inc. and Frankly Financial are non-affiliated entities.
Copyright © 2020. Some articles in this newsletter were prepared by Integrated Concepts, a separate, non-affiliated business entity. This newsletter intends to offer factual and up-to-date information on the subjects discussed but should not be regarded as a complete analysis of these subjects. Professional advisers should be consulted before implementing any options presented. No party assumes liability for any loss or damage resulting from errors or omissions or reliance on or use of this material.
Below are four simple suggestions that can help you increase your financial confidence.
1. Get organized. Not too long ago, it didn’t take much work to organize your finances. Unless you were very wealthy, money matters were fairly
straightforward. You could easily store all your financial information in a single accordion file. Today, things are more complicated. Credit cards, home equity lines of credit, student loans,
401(k)s and IRAs, 529 plans for college
expenses — the list of information to keep track of seems endless. There are numerous strategies for getting organized. Some people stick with that old-fashioned accordion file. Others go completely digital. Whatever solution you choose, you need to know all the details of your finances.
2. Get educated. Simply taking the time to learn more about finances and managing your money can do wonders for how you feel about your life. Basic financial literary isn’t really covered in
most school curricula, so many otherwise savvy adults are clueless in this area. Many community colleges, churches, and nonprofit groups offer classes, or you can sign up for a class online. If you don’t want to go back to school, consider
watching videos or reading articles that review financial concepts.
3. Get a financial plan. Setting goals and making meaningful progress toward those goals will do wonders for your financial self-esteem. In fact, people who engage in financial planning are more
likely to report they live comfortably and are on track to meet their financial goals. A financial plan brings together all the threads of your financial life. Having a solid plan in place that covers everything from preparing for emergencies to planning for retirement is key to boosting your financial confidence.
4. Get help. Getting reliable advice from an outside expert can do wonders for your financial confidence. Just like a doctor supports and guides you in making decisions about your health, a financial advisor is there to make sure you’re
sticking to your financial plan. There are many decisions that are difficult to make on your own, from deciding how much to save for retirement to choosing investments for your portfolio. If you’re
unsure about what to do next, please call.
Consider Maturity Dates
Bonds can be purchased with maturity dates ranging from several weeks to several decades. Before deciding on a maturity date, review how that date affects investment risk and your ability to pursue your goals.
Interest rates and bond prices move in opposite directions. A bond’s price rises when interest rates fall and declines when interest rates rise. The existing bond’s price must change to provide the same yield to maturity as an equivalent, newly issued bond with prevailing interest rates.
Bonds with longer maturities are more significantly affected by interest rate changes. Since long-term bonds have a longer stream of interest payments that don’t match current interest rates, the bond’s price must change more to compensate for the rate change. Although you can’t control interest rate changes, you can limit the effects of those changes by selecting bonds with maturity dates close to when you need your principal.
In many cases, you may not know exactly when that will be, but you should at least know whether
you are investing for the short, intermediate, or long term.
Financial Thoughts
About 69% of Americans say they are concerned about cybersecurity in the wider adoption of technology. Yet, 78% of Americans agree that the widespread adoption of technology within financial services is a positive development (Source: Personal Capital, 2019).
Approximately 80% of adults over age 50 want to remain in their current home as they age, but only 50% expect that they will be able to do so (Source: Barron’s, June 3, 2019).
About 40% of families believe they are paying the right price for college costs (Source: Sallie Mae, 2019).
About 51% of Americans expect to inherit money from older family members. Of that group, 25% believe the inheritance will largely or entirely fund their retirements (Source: WealthManagement.com, June 2019).
About 20% of baby boomers, 36% of gen-xers, 32% of millennials, and 63% of generation z (ages 18 to 22) expect an inheritance from older family members
(Source: WealthManagement.com, June 2019).
Almost 92% of United States taxpayers e-filed their returns in 2019 (Source: eFile.com, 2019).
If you would like more information or to discuss your financial concerns
Representatives are registered through, and securities are sold through Nationwide Planning Associates, Inc., Member FINRA/SIPC, located at 115 West Century Road, Suite 360, Paramus, NJ 07652. Investment advisory services are offered through NPA Asset Management, LLC. Insurance sold through licensed NPA Insurance Agency, Inc. agents. Frank is registered in NJ, NY, PA, FL, CT, CO, NC, OH and RI. He is also licensed for life and health insurance in NJ, NY, FL, OH and RI. The presence of this web site on the Internet shall in no direct or indirect way be construed or interpreted as a solicitation to sell advisory services to residents of any state other than those listed above and shall not be deemed to be a solicitation of advisory clients living in any state other than those listed above. Nationwide Planning Associates, Inc. and Frankly Financial are non-affiliated entities.
Copyright © 2020. Some articles in this newsletter were prepared by Integrated Concepts, a separate, non-affiliated business entity. This newsletter intends to offer factual and up-to-date information on the subjects discussed but should not be regarded as a complete analysis of these subjects. Professional advisers should be consulted before implementing any options presented. No party assumes liability for any loss or damage resulting from errors or omissions or reliance on or use of this material.
A massive amount of automated trading helped cause recent turmoil in the market.
When the Fed began to reverse QE and started QT (tightening), it began to reverse its short volatility position in the bond market, which also affects stock market volatility.
Record inflows into stocks
January, typically a strong month because of the long term tendency for pension funds and institutional money to enter the market. This year was no different, as equity funds enjoyed their biggest monthly inflows on record, attracting about $102.6 billion in January. This caused the stock market to post its best January returns since 1987.
Computers and leverage
The recent decline was driven by computers trading with other computers on high amounts of leverage. High frequency trading (HFT) routinely surpasses 50% of volume on most stock exchanges, and it may have made up more than 50% of recent volume. The 1987 market crash was blamed on “portfolio insurance,” a form of computerized trading in which the lower the stock market went, the more the computer programs sold, creating a quick avalanche effect. Some of the recent moves felt like small avalanches.
The effect of (short) volatility ETFs especially ETPs
The Energy Transfer Partners (ETPs) space is over $3 trillion. As that space has grown, so has the use of computerized trading that helps manage ETP securities. Suffice it to say stock market volatility explosions caused those ETPs to reverse their short VIX futures positions, causing a record surge in VIX futures buy orders after-hours, when such ETPs typically square their positions.
On the day the Dow Jones Industrial Average declined 1,175 points, a surge in VIX futures buy orders created a surge in S&P futures sell orders as they are inversely correlated. Because of the record buying of VIX futures, their prices rose quickly after-hours, which caused many ETPs whose portfolios are short VIX futures to suffer record 80% declines after-hours, in effect blowing up their portfolios.
While most of the assets in short-volatility ETFs have already been liquidated over the week ending Feb. 9, there are still over $3 trillion in assets in all ETPs, so, sorry to say that further downside is still lurking in the stock market. It looks like the regulators allowed a monster to grow in the face of the ETP industry and they will have a very difficult time reining it in.
While this latest avalanche effect may have been triggered by the air pocket of inflows in stocks in February catalyzed by spiking long-term interest rates and imploding short-volatility ETPs, there is likely to be more volatility for the rest of 2018. The Fed is slated to keep reversing its own “short volatility” position in the bond market by intensifying QT operations, so the roller coaster we experienced in January and February may repeat – more than once. (Source: MarketWatch, Feb. 14, 2018)