Wisdom of Rich Dad

For most bond owners, a rising interest rate environment is portfolio poison. As rates climb, the price of existing bonds falls. One possible way to offset that decline is by investing in bank loan funds, also known as floating rate funds. These funds can be a risky but rewarding alternative to more traditional fixed-income investments.

Bank loan funds consist of loans made by banks or other financial institutions to companies and are often below investment grade. While they’re not true fixed income — you can lose money — they can provide a return equal to or better than high-yield money market accounts. That is because the loans that comprise the funds are very short-term, giving lenders the opportunity to frequently raise the interest rate. This ability to keep pace with interest-rate changes also helps keep your principal more stable than the typical bond fund.

Many portfolio managers say that the way these loans are structured removes much of the risk to investors. The loans are typically secured by cash or assets or other property. There are no independent ratings, but experts say the bank should have done its due diligence. The bank packages the loans and sells them; which is where the funds come in.

Bank loan funds at a glance 
 
• Often below investment grade but return equal to or better than high-yield money market accounts
• Very short term
• Less risk to investors
• Senior loan status typically returning 75 cents to 80 cents on default
• Shares may be purchased at any time, but redemptions often are restricted to monthly or quarterly

Bank loan funds are senior loans, meaning that, should the company default, these loans take precedence over other debt and have to be paid back before bond holders. You may not get enough to cover your initial investment, but there’s less risk than with a high-yield bond. Typically, investors get back 75 cents to 80 cents on the dollar when there’s a default.

Short term, quick turnover rates
These investments should be thought of as short-term, high-yield bonds with terms — often 30 days, 60 days or 90 days — that are much shorter than typical high-yield bonds.

You have a better chance of not losing principal because the interest rates on the loans reset very quickly. Short-term interest rates rise and fall in response to rate hikes by the Federal Reserve. That, combined with the quick turnover rates of these short-term loans, means these funds respond quickly to a rising or falling interest rate environment.

You can buy bank loan funds through many companies including AIM, Fidelity, Eaton Vance, Merrill Lynch and Oppenheimer. Be sure to check how much each fund charges for the expense ratio. They tend to be high in this particular asset class.

Liquidity may be an issue for some investors. Many funds in this group allow investors to buy shares at any time but restrict redemptions to monthly or quarterly. Some, such as Fidelity, Franklin and Eaton Vance, have funds that allow redemptions anytime.

Savvy investors keep a portion of their portfolio in fixed-income investments where it’s not subject to the ups and downs of the stock market. Many people opt for the rock-solid security of certificates of deposit, or CDs, but you don’t necessarily want to go to the bank and simply buy a handful of CDs. Having a strategy can lead to bigger returns.

Strategy laddering
Interest rates rise and fall, but in a fairly slow manner. If the economy is in a slump and interest rates are in a prolonged low-rate cycle, you don’t want to get stuck buying a bunch of long-term CDs with low interest rates.

Laddering CDs can help you beat lengthy low-rate cycles because it allows you to take advantage of interest rates spread over months or years while keeping some liquidity. Laddering takes advantage of the fact that almost always, the highest interest rates are paid to the longest term CDs. In other words, a five-year CD is almost always going to have a higher rate than a one-year CD.

A CD ladder can be as long or as short as you like, but for this example let’s use a five-year ladder with five rungs. If you have $20,000 to invest, you’d invest $4,000 in each rung. You could put $4,000 in a one-year CD, $4,000 in a two-year CD and continue up to $4,000 in a five-year CD.

After a year, the one-year CD occupying the first rung matures and each of the other CDs has one less year until maturity. In other words, the two-year CD now matures in one-year; the three-year is two years from maturity, etc.

The money from the one-year CD that has just matured is rolled over into the now vacant five-year rung. Every year you’re replacing the rung that’s farthest out — in this case the five-year rung.

By always replacing the longest maturity, which is the top rung on the ladder, you’re always reaping the benefit of earning the highest interest rates. If interest rates happen to be in a slump one year, you’re only reinvesting a portion of your investment when yields are low. And you don’t have to try to guess when rates are at their highest because you’re constantly reinvesting.

The most important thing to keep in mind when laddering CDs is to make sure the maturities jibe with your cash needs. It’s no good having a one-year CD if you have an emergency halfway into the term and are in a cash crunch because your money is tied up. Penalties for early withdrawal will squash your returns. Make sure there’s enough cash in your emergency fund to carry you through until the shortest rung on your ladder matures. In other words, if the first rung is a one-year CD, you need enough cash on hand for one year of living expenses.

While a five-year ladder allows you to take advantage of the best interest rates offered, your ladder could be shorter if it makes you more comfortable. The rungs should be whatever maturities suit your cash flow needs.

In an extremely low-rate environment, it’s best to keep a ladder short. In that scenario, you could have a one-year ladder with rungs every three, six, nine and 12 months.

One caveat, it’s not a good idea to use callable CDs in a ladder. If interest rates drop, your whole ladder, or a portion of it, could be called.
 

By Lucy Lazaron • Bankrate.com 

Want to be a tip-top money manager?

Give yourself plenty of time.

Bankrate.com’s financial literacy poll shows that Americans with razor-sharp financial skills have been around the block a few times.

The average age of people who scored an “A” on our financial literacy test is a spry 54. And they’re not idle.

Most are busy juggling the demands of work, marriage and family. Yet, they still find the time to mull over financial decisions carefully. And they’re savers. Despite the incessant financial costs of raising children, they manage to save.

Their average household income is an impressive $63,500. They’re Internet-friendly and use the Web to help manage their finances.

They’ve got a firm grasp on the key financial matters in their lives. They’re fiscally fit and savvy and they’re a distinct minority.

Just 10 percent of Americans polled by Bankrate.com scored an “A” on our financial literacy quiz. And just 16 percent scored respectable “Bs.” So only a quarter of all Americans seem to be in charge of their finances.

The rest need some serious financial help. And a whopping 35 percent failed miserably, scoring big, fat “Fs.”

What do the fiscally fit and savvy “As” have going for them that the faltering “Fs” don’t? The differences may surprise you.

Gender, formal education play no role
First off, gender is not much of a factor at all. Neither is formal education. Age, however, does seem to make a difference and so does attitude.

The average age of those Americans that flunked our financial quiz is 41. They’re a decade or so younger than the fiscally fit crowd. But they’re not exactly kids either. They’re plenty old enough to take charge of their financial lives.Not surprisingly, financial flunkies tend to have lower household incomes, an average of just $43,000. Most have children and more than half are unmarried. They have the same Internet access as those at the other end of the grade scale — but only 26 percent use the Internet to manage their finances.

The biggest differences between a financial ace and a financial flunky may boil down to mindset and good, old-fashioned discipline.

Consider that 61 percent of Americans with failing financial grades say they plan carefully when making decisions. But that a full one-third says they tend to make decisions, including financial ones, spontaneously.

They’re also spenders. Fifty-six percent of those at the bottom of the financial literacy heap call themselves spenders rather than savers.

In contrast, a whopping 91 percent of all financial aces make a point of planning carefully when making decisions. And 76 percent of those with tip-top finances consider themselves savers.

And maybe even more telling only 14 percent of financial aces consider themselves spenders.

Excuses, excuses
Another important distinction between the fiscally fit and the fiscally adrift, comes down to attitude.

Financial flunkies are full of excuses. The biggest excuse has to do with time.

• Sixty-eight percent of fiscally unfit Americans plan to get their finances in better order as soon as they find the time.
• More than half can’t afford to put money away for an emergency that might never happen.
• More than 30 percent say finding the best deal on a mortgage is confusing.
• One-fifth say making a will is too depressing.

Folks in charge of their financial lives don’t mess around with excuses. They know it takes time and hard work to manage their money and make sound, financial decisions. And that’s exactly what they do.

Few things in life are as complicated – and vital – as life insurance. In many cases, you may think that you need a lawyer present to sort through the jumble of confusing legal terms used in a standard term life insurance quote.

You need to remember, life insurance companies rely heavily upon statistics that take into account a number of factors, such as age, medical history, and life expectancy, to calculate life insurance quotes for potential customers. These policies are legally binding, and the insurance company is taking a risk on anyone they insure – which is precisely why any given policy is filled with so much legal jargon that even lawyers might feel overwhelmed when reading through it! But don’t worry – there is a light at the end of the tunnel, because your life insurance quote is not as complicated as it may seem at first.

Do I even need term life insurance?

That is a great question, and the answer depends on exactly what needs you happen to have. There are numerous life insurance options, but for now we will just focus on the two big ones: term life insurance, and whole life insurance. You will want a term life insurance quote if you want to provide your family with protection against any outstanding debts. This includes things like mortgages or other large chunks of debt. Parents of young children, who want to make sure that their kids will be taken care of in the event of their death, generally buy a term life insurance policy. You will want a whole life insurance quote if you want to use the policy as a potential investment, as these policies build cash value over time.

I just want to make sure my loved ones are taken care of…

In that case, you probably need a term life insurance quote. Again, whole life insurance policies are more for investment purposes, and this is why they have higher premiums. Term life insurance has lower premiums, but never builds any cash value, while a whole life insurance policy can be “cashed in” at some point.

OK, so I need term life insurance. What now?

Ah, now…that is the question, isn’t it? Before you ask for a term life insurance quote, you need to decide just how long the “term” needs to be. Without getting in too deep and needing to bring the lawyers in, a term life insurance quote will be based upon a specified period of time. So, how long do you need the policy for?

Hey, I just thought it was life insurance! I thought you just needed it…you know, forever!

Actually, term life insurance is supposed to help you take care of your family and debts in the event of your untimely death. So, if you have young children who are 15 years away from leaving for college, then you might want to get a policy that lasts for 20 years. This way, they can go to college and hopefully become financially independent by the time the coverage expires. When trying to decide on the term to ask for in your life insurance quote, consider the following factors: your age, the amount of outstanding debt you have, and where children are concerned, the time it will take for them to be financially independent.

So I need a twenty-year term life insurance quote…what else do I need to do?

Life truly is in the details, isn’t it? Well, after you have determined that you need term life insurance, and you know how long you’ll need the policy for, there will be some additional factors that will affect your quote. For instance, your term life insurance quote will most likely be contingent upon a medical exam, and there may even be a waiting period before it kicks in. Don’t take it personally!

After all, this policy could take care of your family after you are gone, and that will cost the insurance company a sizeable chunk of cash. They certainly don’t want to give someone a life insurance policy with a large payout if they have a terminal condition. But don’t worry; your term life insurance quote is contingent upon a fairly non-invasive exam that will involve a blood and urine test. So long as you pass those with flying colors, you will have your term life insurance policy – and the peace of mind that comes from knowing that your family will be taken care of should anything happen to you.

Albert Medinas has developed and maintains the website Life Insurance Directory, which answers the most common questions people have about Life Insurance. Please visit us at http://www.lifeinsurancedirectory.net today.

Robert Kiyosaki was the worst salesman when he first started selling.

Perhaps, he did not know of this story:
~
The manager of a megastore came to check on his new salesman.

“How many customers did you serve today?” the manager asked.

“One,” replied the new guy.
“Only one?” said the boss. “How much was the sale?”
The salesman answered, “$58,334.”

Flabbergasted, the manager asked him to explain.
“First I sold a man a fishhook,” the salesman said. “Then I sold him a rod and a reel. Then I asked where he was planning to fish, and he said down by the coast. So I suggested he’d need a boat – he bought that 20-foot runabout. When he said his Volkswagen might not be able to pull it, I took him to the automotive department and sold him a big SUV.”

The amazed boss asked, “You sold all that to a guy who came in for a fishhook?”
“No,” the new salesman replied. “He actually came in for a bottle of aspirin for his wife’s migraine. I told him, “Your weekend’s shot. You should probably go fishing.”

~

Julius Apegu

Author Peter Drucker once said: “The best way to predict the future is to create it.”

If you ‘re searching for a way to get more out of life or if you’re in need of more for yourself and your children, you must get financial education to create your desired future. There are three types of education. Scholarship education – which teaches us to read, write and do mathematics.

Professional education – which teaches us to work for money by becoming a doctor, an engineer, and an accountant, and financial education – which teaches us to have money work hard for you instead of you working hard for money.
Financial education is what you need most to secure your and your family’s financial future.

Unfortunately it’s not taught in most schools. To get it you must get a coach, who will help you pinpoint the tactics and techniques of making money work for you. From a coach you will gain sound, tasted wealth-building techniques.

You will for example know how to find capital, how to create part-time income and make it grow into financial independence. Self – help books like those written by Robert Kiyosaki can get you and your family financially educated at home.

Gaining financial independence is like getting a university degree. It’s earned only by following a certain course of action for a definite period of time.
Besides, success in life does not come through luck; it comes through doing the right things.

Your financial knowledge and awareness determine your financial position and freedom. What you need to do is learn about money, (I’m glad you’re reading this article), and how it works.

Check your belief system so that you begin to set specific goals to make, save and invest a portion of everything that you earn. Financial education is life-changing education; education powerful enough to transform a caterpillar into a butterfly.
It’s an education that provides street-wise skills that enable you become a successful entrepreneur.

Start with your dream and work backwards. Your big dream will be the required motivation to leapfrog you to doing what needs to be done, and to start making things happen.

After gaining some financial independence, to keep growing personally and to grow your investments you’ve got to keep learning. The rules are always changing. The markets are always changing. To be a wining investor you’ve got to change as the market trends change.