A Floating Rate Fund Favorite

By:  Mark Salzinger, Editor and Publisher, No-Load Fund Investor

Floating rate debt (also called bank loans, senior loans, or leveraged loans) differs from conventional, plain vanilla bonds in how the rates of their interest payments are set.

Most conventional bonds are issued with a fixed rate. When rates rise, prices fall for fixed rate bonds. Floating rate debt, however, exposes investors to virtually no interest rate risk.

The interest payments reset at frequent, fixed intervals, usually less than every 90 days. The issuer agrees to pay a premium, called the 'spread,' above the interest rate of a market benchmark, often the London Interbank Offer Rate (LIBOR).

As the benchmark rate rises, the issuer will pay more interest at the next reset. As the rate declines, so will the interest payment.

Of course, floating rate securities are subject to credit risk. Such securities are popular among issuers with poor credit ratings, because it allows them to borrow at rates lower than what they would have to pay if they issued conventional fixed-rate debt.

To counter the risk in lending to such borrowers, most floating rate securities give lenders a senior position in the borrower's credit structure. That is, they are high in the pecking order of creditors to be repaid, should the borrower default.

It is possible to think of floating rate ETFs that invest in high-quality bonds as a kind of prime money market fund with somewhat more risk.

We think PowerShares Senior Loan (BKLN), the largest floating-rate ETF by assets, is the most attractive option for investors interested in adding a floating rate ETF to their portfolio. Its SEC yield was recently 4.3%.

BKLN has had a high correlation with fixed-rate high-yield bonds. This reflects the generally strong credit in recent years, but when such issuers struggle, floating rate bonds do too.

BKLN has more than $4.7 billion in assets, as of June 28. It tracks an index of the 100 largest outstanding leveraged loans, all of which must have at least one year to maturity and a spread of at least 1.25 percentage points above their benchmark rate.

Nearly 85% of BKLN's portfolio is in securities rated 'BB' or 'B,' the two highest tiers of below-investment-grade ratings. About 45% of the portfolio is in securities with one-to-five years to maturity; the other 55% is in securities with five-to-ten years to maturity.

PowerShares Senior Loan Portfolio (BKLN) is a component of the D2 Capital Management Multi-Asset Income Portfolio.

The information contained in this article does not constitute a recommendation, solicitation, or offer by D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 

 The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville.  The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association. 

Actively Managed Bond ETF Proves Durable as Rates Rise

As a group, actively managed exchange traded funds are still a small sliver of the overall ETF universe. However, one area where active management has been successful is in the fixed income space. Whether it has been with emerging markets bonds or more conservative fare, some actively managed bond funds have thrived, including the Peritus High Yield ETF (HYLD).

HYLD has a 30-day SEC yield of 8.35%.

HYLD has seen net inflows since the start of June . Since the start of July, HYLD has attracted $7.74 million in new investments as Federal Reserve Chairman Ben Bernanke has comforted nervous investors by saying monetary policy will remain accommodating for the foreseeable future.

Over the past month, 90 days, year-to-date and over the past year, HYLD has outperformed the Barclays U.S. High-Yield Index, according to AdvisorShares data.

Source:  Tom Lydon, ETF Trends

Peritus High Yield ETF (HYLD) is a component of the D2 Capital Management Multi-Asset Income Portfolio.

The information contained in this article does not constitute a recommendation, solicitation, or offer by D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 

 The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville.  The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association.

Two of Morningstar’s Favorite Bank Loan Funds

Investors seeking a mix of income and a shield against higher interest rates have discovered bank loan funds. The category has matured to a degree that they can choose from both actively managed funds and passive, index-linked exchange traded funds.

“There are a number of mutual funds, closed-end funds, and exchange-traded funds (ETFs) that invest in bank loans,” says Morningstar analyst Timothy Strauts.

PowerShares Senior Loan Portfolio (BKLN) is a Morningstar favorite and is the oldest exchange traded fund in the group, launching in March 2011. The fund holds $4.8 billion of assets and is currently paying an SEC yield of 4.17%. BKLN is one of the best-selling ETFs this year.

“ETFs have the advantage of offering below-average fees and intraday liquidity and tend to trade near net asset value. ETF investors have the choice between passive or active strategies in the ETF wrapper,” Strauts wrote in an article posted on Morningstar’s website 26 July.

Additionally, Morningstar also liked Eaton Vance Floating Rate (EABLX).  Eaton Vance Floating Rate is the only mutual fund in the bank-loan category with a Morningstar Analyst Rating of Gold. It is one of the largest bank-loan funds with more than $12 billion in assets. This mutual fund follows a similarly conservative investment strategy without the risk of leverage. It has a current SEC yield of 3.8%.

Source:  John Spence, ETF Trends and Tim Strauts, Morningstar

PowerShares Senior Loan Portfolio (BKLN) is a component of the D2 Capital Management Multi-Asset Income Portfolio and Eaton Vance Floating Rate (EABLX) is a component of many of our other fund portfolios.

The information contained in this article does not constitute a recommendation, solicitation, or offer by D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 

 The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville.  The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association.

Investment Tax Basics For All Investors

“…nothing can be said to be certain, except death and taxes.” - Benjamin Franklin

The founding father’s famous axiom is as true today as the day he wrote it, which means investors need to understand what the government takes.

The federal government taxes not only investment income - dividends, interest, rent on real estate, etc. - but also realized capital gains. The taxman is smart, too; investors cannot escape by investing indirectly through mutual funds, exchange-traded funds, REITs or limited partnerships. For tax purposes, these entities are transparent. The tax character of their distributions flows through to investors in proportion to their economic interest, and investors are still liable for tax on capital gains when they sell.

Tax on Dividends - Companies pay dividends out of after-tax profits, which means the taxman has already taken a cut. That’s why shareholders get a break - a preferential tax rate of 15% on “qualified dividends” if the company is domiciled in the U.S. or in a country that has a double-taxation treaty with the U.S. acceptable to the IRS. Non-qualified dividends - paid by other foreign companies or entities that receive non-qualified income (a dividend paid from interest on bonds held by a mutual fund, for example) - are taxed at regular income tax rates, which are typically higher. In 2013, that's a sliding scale up to 39.6%, plus an additional 3.8% surtax for high-income taxpayers ($200,000 for singles, $250,000 for married couples).

Investors can reduce the tax bite if they hold assets, like foreign stocks and taxable bond mutual funds, in a tax-deferred account like an IRA or 401(k) and keep domestic stocks in their regular brokerage account.

Tax on Interest - The federal government treats most interest as ordinary income subject to tax at whatever marginal rate the investor pays. Even zero-coupon bonds don’t escape. Although investors do not receive any cash until maturity, they must pay tax on the annual interest accrual on these securities, calculated at the yield to maturity at the date of issuance.

The exception? Interest on bonds issued by U.S. states and municipalities, most of which is exempt from federal income tax. Some municipal bonds exempt from regular federal income tax are still subject to the alternative minimum tax, however. Investors should check the federal tax status of any municipal bond before they buy.

Investors may get a break from state income taxes on interest, too. U.S. Treasury securities are exempt from state income taxes, while most states do not tax interest on municipal bonds issued by in-state entities.

Tax on Capital Gains - Uncle Sam’s levy on realized capital gains depends on how long an investor held the security. The tax rate on long-term (more than one year) gains is 15%, except for high-income taxpayers (in 2013, $400,000 for singles, $450,000 for married couples) who must pay 20%. High-rate taxpayers will typically pay the healthcare surtax as well, for an all-in rate of 23.8%.

Short-term (less than one year of valid holding period) capital gains are taxed at regular income tax rates.

Tax Losses and Wash Sales - Investors may offset capital gains against capital losses realized either in the same tax year or carried forward from previous years. Individuals may deduct up to $3,000 of net capital losses against other taxable income each year, too, while any losses in excess of the allowance are available until either offset against gains in future years or amortized against the annual allowance.

Investors can minimize their capital gains tax liability by harvesting tax losses. If one or more stocks in a portfolio drops below an investor’s cost basis, the investor can sell and realize a capital loss for tax purposes, which will be available to offset capital gains either in the same or a future year.

There’s a catch, however. The IRS treats the sale and repurchase of a “substantially identical” security within 30 days as a “wash sale”, for which the capital loss is disallowed in the current tax year. The loss increases the tax basis of the new position instead, deferring the tax consequence until the stock is sold in a transaction that isn’t a wash sale. A substantially identical security includes the same stock, in-the-money call options or short put options on the same stock, but not stock in another company in the same industry.

The Bottom Line: Taxes Matter - Taxes have a significant impact on the net return to investors. Detailed tax rules are available on the IRS website for dividends and for capital gains and wash sales. While careful asset placement and tax-loss harvesting can reduce the tax burden, everyone’s tax circumstances are unique. Investors should consult their own financial and tax advisors to determine the optimum strategy consistent with their investment objectives.

Source:  Investopedia

Always consult with your tax professional to ensure accurate preparation of your Federal Income Tax Return.

The information contained in this article does not constitute a recommendation, solicitation, or offer by D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 

 The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville.  The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association.

Self Directed IRAs

Did you know that you can invest in real estate, mortgages, leases, and other asset backed investments inside your retirement plan?  

Since 1975 self-directed plans have been available, although relatively few IRA holders have taken the time to understand their options and take advantage of such plans.

There are three things you should know when you self-direct your retirement plan:

• Which retirement plans are best – Traditional IRA, Roth IRA, SEP, Simple or Individual(k)
• What types of investments you want to make within the plan
• Understand the IRS rules of self-dealing and prohibited transactions

The IRS rules regarding prohibited transactions are not too complex, yet one should consult a tax advisor for specific advice.  Transactions are prohibited between you and your immediate family (except siblings), employers (in a qualified plan), certain partners, fiduciaries and other categories spelled out in the IRS code.  IRA owners may not borrow money from their Self Directed IRA, sell property to it, receive unreasonable compensation for managing it, or use as security for a loan.  There are also several named categories, such a collectables which also may not be held by your Self Directed IRA.

The opportunities outside these prohibited transactions are significant.  You may buy, sell or exchange investment property.  You can partner with friends, relatives and business associates to purchase property, then lease it to anyone that is not a disqualified person.  You can roll property from one plan to another – or even take property from your plan as a distribution.

Some individuals have formed investment groups, combining IRA and non-IRA funds to purchase and hold property, rehab and turn properties or simply lend out the funds in the form of notes and mortgages. 

In addition to these, a Self Directed IRA may also invest in partnerships, LLCs, private stock offerings, loans (both secured and unsecured), tax lien certificates, purchase options, joint ventures and other investments.

So if you are confident in your abilities to make your own investment decisions, have the desire to reduce or eliminate the tax consequences on your gains, and have the resources to invest – self-direction may prove to be a wise choice.

Source:  Glen Mather, NuView IRA

 

Self Directed IRAs require a special self directed administration company.  D2 Capital Management uses the services of NuView IRA for those clients who desire to self direct their Individual Retirement Accounts.  D2 Capital Management may receive compensation for this.

The information contained in this article does not constitute a recommendation, solicitation, or offer by D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 

 The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville.  The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association.

Detroit Goes Down In History (Analysis)

By:  Peter Hayes and James Schwartz, BlackRock Municipal Bonds Group

The City of Detroit on Thursday filed for Chapter 9 bankruptcy protection, assuming its place in US history as the largest-ever municipal bankruptcy. Despite its size and the infamy of the event, the impact on the broader municipal market is expected to be negligible.

Detroit's Chapter 9 filing on July 18 came slightly sooner than expected, but in no way was a surprise to the market. Governor Rick Snyder, in authorizing the filing, cited the "fiscal realities" in the city that "have been ignored for too long" and deemed bankruptcy "the only viable option to address a problem that has been six decades in the making."

We would caution municipal market participants against making correlations between Detroit and any other municipal issuer. Local government stress, as indicated by general obligation (GO) bond defaults, remains extremely rare. According to Moody's, the one-year default rate was 0.03% over the past five years, a period that included a severe recession. Furthermore, Detroit's situation is clearly unique, as indicated by the emergency manager's own assessment:

• The city's population has declined 63% since its 1950 high and 26% since 2000.
• Unemployment peaked at a startling 23.4% in June 2010, up from 6.3% in 2000, and remained at an elevated 18.3% in June 2012.
• Detroit's violent crime rate is five times higher than the national average and the highest of any large city.
• Approximately 40% of the city's street lights are not functioning; 78,000 structures and 66,000 lots are abandoned and blighted. Arson is prevalent, with 12,000 fires each year, 60% in derelict or unoccupied buildings.
• Detroit's general fund deficit currently stands at $375 million, or roughly $700 million when adjusted for recent deficit borrowing. That's within the context of a $1 billion fiscal year (FY) 2014 budget. The city had projected negative cash flow of $198 million in FY 2014, and by the end of FY 2013, will have deferred $100 million in pension funding.

The city's problems, while long known to the municipal market, have had little bearing on it—a scenario we expect will continue, even in the wake of the bankruptcy filing. In fact, the news of the record filing did little to unnerve the market in the immediate aftermath. While some indirect action such as outflows or price weakness could ensue in the near-term as the market digests the news, we would remind investors that headlines rarely tell the whole story.

For the broader municipal market, we do not anticipate a widespread systemic effect. The basic fundamental credit underpinnings of the municipal market remain very healthy and, in fact, are better than they were in 2008.

Two of the funds in D2 Capital Management's Tax Free Income Portfolio hold negligible positions in Detroit revenue bonds.  Detroit revenue bonds are secured by city enterprise revenues, such as the city’s water system, and have been excluded from the city manager’s recovery plan, at least as proposed currently. The plan proposes to pay these obligations in full, without involvement in the bankruptcy case, because they are secured by special dedicated revenues from enterprises that are not part of the city’s general operations.

The information contained in this article does not constitute a recommendation, solicitation, or offer by D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 

 The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville.  The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association.

The Truth About Thrift Savings Plan F and G Funds

Are you a TSP contributor? Are you sitting in the G Fund; or maybe the F Fund? Did you know you are losing money?

The G Fund is basically a cash account that pays some interest. Think Money Market account.  This characteristic of the G Fund appeals to many people. It’s easy to understand. Their principal is safe and the account value only goes up.

The F Fund is invested in bonds. People are comfortable with bonds and they feel safe also. Bonds protect your money right? But a significant increase in interest rates could cause the fund to lose some principal. 

Over the last 12 months, the G Fund in the TSP returned 1.44%. The F Fund returned -0.48%. While looking at the returns tells a story, it is only a small part of the story. With returns like these, by the time you factor in taxes and inflation, you are losing money.

What’s that mean in real money? Let’s say you had $10,000 in your TSP account. At 1.44% over 15 years, your money grows to about $12,390. On the other hand, if inflation goes back to the historic average of 3%, your $10,000 after 15 years would be worth about $6400 in purchasing power. The net outcome would be that your $10,000 would be worth $7950 in purchasing power after 15 years with inflation. Imagine yourself retired, $10,000 to spend your first year and having only $7950 to spend 15 years later. And we still haven’t factored in taxes you would owe.

The lesson? Being safe and conservative does not build wealth. And wealth is what you need to retire. You can build wealth but you have to take ownership over your future and your investments.

You have to establish an investment plan that builds wealth over your working lifetime or you lose. Keeping your money “safe” is not going to work unless you plan to have a very inexpensive retirement.

Think about it…you have to accumulate enough money over your working life to live on (create income) for the 20, 30 or 40 years you will be retired. You have one working life to get it right or you’ll be at the mercy of the government.

Source:  Multiple Sources 

The information contained in this article does not constitute a recommendation, solicitation, or offer by D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 

 The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville.  The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association.

Bank Loan ETFs: Shelter from the Rising-Rate Storm

Bank loan ETFs are sitting on gains for 2013 while diversified bond funds are in the red due to rising interest rates.

PowerShares Senior Loan Portfolio (BKLN) is one of the best-selling ETFs this year with net inflows of about $3.3 billion. It is the largest bank loan ETF with assets of $4.8 billion.

BKLN and other bank loan ETFs have been popular with investors seeking yield and protection from rising rates. The funds have delivered on both fronts.

BKLN is yielding more than 4%.

Bank loans “have tended to have low average default rates versus high-yield bonds, above-average yields, and very low duration (given that they pay floating rates), are negatively correlated to Treasury bonds, and have historically generated above-average returns in rising interest-rate environments,” writes Morningstar ETF analyst Timothy Strauts in a commentary posted Wednesday.

Investors have been “pouring money into bank-loan funds” as interest rates rise, Strauts notes. After dipping below 1.7% in early May, yields on 10-year Treasury notes have vaulted to around 2.6%.

“Rising rates have had very little effect on the price of bank loans, given that their duration tends to be very near [zero]. And given that the economy has continued to improve, the default rate within the sector over the past year has been just 1.4%,” the Morningstar analyst said.

Source:  John Spence, ETF Trends

PowerShares Senior Loan Portfolio (BKLN) is a component of the D2 Capital Management Multi-Asset Income Portfolio.

The information contained in this article does not constitute a recommendation, solicitation, or offer by D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 

 The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville.  The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association.

Men More Attentive Savers Than Women

Although men and women are both saving for retirement, men are more likely to take it seriously, a survey from MassMutual found.

The survey, conducted by Brightwork Partners for MassMutual, found 30% of men pay attention to fund performance, compared with 22% of women. They’re also more likely to think about their income in retirement (26% versus 18%) and asset allocation (25% versus 15%).

MassMutual Retirement Services surveyed over 2,000 defined contribution plan participants as a follow-up to a 2011 survey and found retirement was the top saving priority among all respondents, with nearly a quarter citing it as their biggest financial worry, up from 18% in 2011. Almost two-thirds called it a major priority. Saving for retirement surpassed meeting day-to-day obligations and paying down debt as respondents’ biggest worry.

In line with that shift in priorities, people are saving more, the survey found, with the average savings rate increasing from 9% in 2011 to 10.5% in 2013.

"The evidence that retirement is on the minds of virtually every American worker is encouraging," Merl Baker, principal for Brightwork Partners, said in a statement.

One possible reason men are paying more attention financial issues is that they’re more likely to have a financial advisor telling them to do so. Overall, use of a professional advisor is relatively low, with just 28% of all respondents saying they currently have an advisor or have used one in the past five years. Furthermore, while 31% of men said they have worked with an advisor, up from 30% in 2011, fewer women said they are working with a financial professional (24% versus 27% in 2011).

Overall, respondents’ satisfaction with their advisors is up markedly. In 2011, 25% of people who worked with a professional advisor said they were “very satisfied” with the information they received. In 2013, that percentage increased to 47%.

As much as their satisfaction with advisors increased, respondents’ satisfaction with their plan sponsors as a source of information fell even more. In 2013, only 10% of plan participants said they were satisfied with the information they received from their plan sponsor, down from 30% in 2011.

Source:  Danielle Andrus, ThinkAdvisor.com

The information contained in this article does not constitute a recommendation, solicitation, or offer by D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 

 The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville.  The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association.

How To Match Your Savings Goal With Investments

Sometimes beginning investors forget the trick to success when it comes to investing money: you need to match your future financial goals to the right kind of investment. If you start with figuring out how to allocate your assets as your primary goal, you’ll have the money you need in the future.

What are your goals?

When deciding where to put your money or how to invest, you need to consider your short- and long-term goals. Are you looking to buy a new car? Do you want to stop renting and buy a house? Maybe you need an emergency fund for unexpected situations, or you’re saving to send your babies to college. And don’t forget about retirement! You probably have several goals -- make a list and prioritize the list by which goals are most important to you. Next to each item on your list, put an estimated value for how much money you need. The number does not need to be exact, but use online calculators to get a good idea for how much you’ll need for college when your children are old enough, how much you’ll need for retirement, and for each of the other goals on your list. Once you see your goals written in black and white and listed in order of priority, put a timeline for each. Which of these goals do you need to achieve first? Maybe your children are in elementary school so you have several years to save toward their college while you may need a car in the next year or two. Put a date next to each goal on your list.

Match your assets with your goals

Short-term goals need short-term assets, or at least access to the money in a short period of time as opposed to long term investments that tie your money up for a specific period of time. Short-term goals are best funded with cash investments like savings accounts, certificates of deposit or money market accounts. These options don’t offer a high return but they are safe and you can easily access your money when you need it for emergencies. Long-term goals can take advantage of investments that earn a higher return or mature at a date further into the future than cash investments. You can look into long-term certificate of deposits or bonds that mature at a specific date to match when you need the money. For retirement, the stock market is an appropriate option as long as you stick with it -- the return generally outpaces inflation over time.

Make changes as you reach your goal dates

In addition to matching your assets with your goals, you need to remember it is not a “set it and forget it” process. As you get close to the dates for each of your goals, you may need to make adjustments or move the money into less risky investments. For example, if you are reaching your retirement age, you will want to move at least a portion of your retirement savings into non-risk savings or short-term investment options.

Source:  Debbie Dragon, MyBankTracker

D2 Capital Management's Goals-Based Investing philosophy differs from that employed by the majority of investment firms. We help clients identify their financial goals and dedicate a Separate Goals Account™ to achieve each one of them.

The information contained in this article does not constitute a recommendation, solicitation, or offer by D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 

 The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville.  The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association.

Your Portfolio Still Need Bonds

Investors got a wake-up call recently as prices fell on their "safe" assets—bonds.

Interest rates are still in a historic low range, and bond returns are likely to be lackluster over the next decade or so—in sharp contrast to the bull market in bonds we experienced over the past 30-plus years.

But instead of dumping bonds wholesale or trying to time purchases and sales around interest-rate movements, long-term investors would do well to backspace a moment and ask themselves why they own bonds in the first place.

For most buy-and-hold investors, it's primarily for ballast—to counterbalance the volatility of stocks. It's not to shoot the lights out—though investors can be forgiven for being confused on this point, since for a generation the average yield of the Barclays U.S. Aggregate Bond Index topped 7%, a rate that was high enough to both insulate a portfolio from stock losses and boost returns.

Going forward, bonds probably won't contribute nearly as much to your portfolio's overall return, but they're still likely to function as effective shock absorbers—provided you stick with a diversified portfolio of high-quality, investment-grade bonds or bond funds.

Bonds blunt losses in a bear market and bonds' downside protection will probably remain.

For the total-return investor who reinvests interest distributions, lower bond prices are somewhat offset by higher yields and potentially higher returns going forward.

Of course, you also should consider using some certificates of deposit and money markets for a portion of your "safe" holdings.  But cash tends to underperform both stocks and bonds following a rise in long-term interest rates.

Source:  Carolyn Geer, Wall Street Journal

D2 Capital Management uses a variety of bond mutual funds and bond managers to maximize diversification in our client accounts.

The information contained in this article does not constitute a recommendation, solicitation, or offer by D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 

 The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville.  The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association.

Bonds Help Diversify Portfolios

Even as interest rates move off their lows and begin to hurt fixed-income assets, investors should not forget that bonds and related exchange traded funds still help diversify an investment portfolio and diminish overall volatility.

“For the folks who are really trying to find noncorrelated and less volatile investments, bonds fit that profile, and people own bonds because there is some kind of financial plan, whether it is stated or not,” J. Brent Burns, president of Asset Dedication LLC., said in an InvestmentNews article.

As interest rates begin to climb off their record lows and bond prices declined – yields and bond prices have an inverse relationship, investors should not become too trigger happy for alternatives to bonds.

“The question I always ask is, if not bonds, then what?” Chris Philips, a senior analyst in the investment strategy group at The Vanguard Group Inc., said in the article.

For instance, dividend-paying stocks have become a popular income generating alternative, along with emerging market debt, commodities, real estate investment trusts and high-yield bonds.

“If you are moving out of bonds into something else, all of those other strategies come with different and potentially greater risk than the bonds you are leaving,” Philips said. “The minute you try to replace fixed income with stocks, they will start performing like stocks because stocks never are and never will be bonds.”

While there is nothing wrong with squeezing out a little more return through alternative assets, analysts and advisors are concerned that investors are taking on greater risk.

“We’ve seen over the past couple of years a lot of investors moving out of traditional fixed income and into things that have increased duration exposure and interest rate exposure,” Philips added. “If you’re making that move out of bonds and into stocks, you better expect tremendous volatility.”

Source:  Tom Lydon and Tom Chen, ETF Trends

D2 Capital Management uses a variety of bond mutual funds and bond managers to maximize diversification in our client accounts.

The information contained in this article does not constitute a recommendation, solicitation, or offer by D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 

 The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville.  The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association.

 

BlackRock Sees Opportunities in Emerging Markets

BlackRock, the world’s largest asset manager and the parent company of iShares, the world’s largest exchange traded fund (ETF) provider, sees opportunities in emerging markets.

“Emerging markets are far from bulletproof. But they are better equipped than ever to counter the challenges [they will have to face] in the second half of the year,” reports Chiara Albanese for the Wall Street Journal, citing commentary from BlackRock portfolio managers in the firm’s mid-year update.

In terms of specific markets, weak currencies and declining commodities prices, among other factors, could continue to hamper markets such as Peru and South Africa. Structural funding issues could be problematic for nations such as India, Indonesia and Turkey, according to the Journal.

On the other hand, BlackRock sees opportunities in a pair of formerly beloved emerging markets along with one Eastern European country that has, at times, during the tumult proven somewhat sturdy.

“Mexico is a well-loved child and as soon as volatility calms down, investors will jump back in the market. The same is likely to happen for the Philippines and Poland in Eastern Europe,” said Benjamin Brodsky, global head of fixed income asset allocation and emerging markets at BlackRock.

Source:  Tom Lydon, ETF Trends

SPDR S&P Emerging Market Dividend (EDIV) is a component of the D2 Capital Management Multi-Asset Income Portfolio.  Trailing 12 month yield for EDIV is 6.81% (as of 19 July 2013).

The information contained in this article does not constitute a recommendation, solicitation, or offer by D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 

 The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville.  The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association.

High-Yield Preferred ETFs Stabilize After Downdraft

The largest exchange traded fund (ETF) focused on “Preferred Stocks”, iShares S&P U.S. Preferred Stock (PFF) has stabilized this week from the June carnage that it experienced in terms of a steep downdraft and institutional selling amid the all too familiar rising rate fears in the marketplace.

PFF has an impressive $10.7 billion in assets under management, with the next closest competitor in the space, PowerShares Preferred Portfolio (PGX) amassing $2.3 billion in AUM.

Currently, PFF boasts a 5.85% yield and PGX a 6.51% yield.

In terms of portfolio composition, none of these products are created identically and may have varying exposures to different equity sectors if not international exposure in some cases as well.

Source:  Paul Weisbruch, Street One Financial

iShares S&P 500 US Preferred Stock Index Fund (PFF) and the PowerShares Preferred Portfolio (PGX) are components of the D2 Capital Management Multi-Asset Income Portfolio.

The information contained in this article does not constitute a recommendation, solicitation, or offer by D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 

 The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville.  The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association.

Retirement 101: You Can’t Afford Not to Save

When the economy goes south, people often forget about retirement planning or just stop doing it because they think they can’t afford it. But the truth is that you can’t afford not to save for retirement.
Costs only go up over time, and the longer you put off saving for retirement, the harder it will be. It’s never too late to start saving for retirement, but the earlier you start, the better off you will be.

Remember that, while you can finance things like college, homes, weddings, etc., you cannot finance your retirement. You have to pay for it yourself. And regardless of how economically you live, Social Security will likely not be enough to cover your needs.

So how can you afford it right now?

You may be wondering how to afford it when you’re already struggling to make ends meet. But it may be easier than you think to make a small sacrifice now that can add up to a big difference later. For example, how much is that cup of coffee you grab every day? Maybe you think that saving that $1 a day won’t make a big difference over time, but it could.

One dollar per day is more than $300 per year, $3 per day adds up to nearly $1100 per year, and $5 per day is more than $1800 per year. Over time, that $300, $1100 or $1800 you invest can begin to compound and create a really significant difference in your retirement readiness. Plus, if you invest that money in a tax-deferred 401(k) plan, that $300 feels more like $225 to you. Even $1800 feels closer to $100 a month or $50 per pay period. Again, that small sacrifice now could make a big impact later.

Save early and often.

As you can see, even that $1 per day can make a big difference over time. And if that’s all you can afford, it’s better than doing nothing. Once you determine how much you might be able to save, you should start saving right away. Consider that interest and earnings compound over time. For example, if you invest $100 and earn 5%, at the end of the year you’ll have $105. Then, even if you don’t invest any more, you begin to earn interest on the interest as well, so if you earn another 5% the following year, you’ll have $110.25. And so on and so on.

Source:  Wisdom Tree ETFs

The information contained in this article does not constitute a recommendation, solicitation, or offer by D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 

 The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville.  The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association.

BlackRock: Four Reasons to Like Muni Bonds

By:  Peter Hayes, Head of the Municipal Bonds Group at BlackRock.

I’ve been in the business for many years, since the 1980s in fact, and it’s been fascinating to see the evolution of the municipal asset class from a once specialized (and some have said “sleepy”) investment alternative to a widely recognized fixed income vehicle — one that is in demand and highly prized for potential income generation.

Why are investors seeking more and more munis? I’d say there are four main factors, which I will cover here in my 30,000-foot view of Muniland. In future posts, I’ll delve more deeply into these and other topics, and I also look forward to hearing from you with any questions you’d like me to answer when it comes to muni bonds.

1. Tax Benefit, Anyone? Munis are unique investment vehicles in that they are generally exempt from federal and, in some cases, state taxes. No other financial assets can make the same claim. This also means munis are among the only assets to increase in value when tax rates rise, as they have since the fiscal cliff deal was negotiated at the start of the year. Now, under normal circumstances, munis will generally offer lower yields than Treasuries before taxes, and then make up for them on an after-tax basis. However, in today’s low-rate environment, we’re seeing munis outyield Treasuries before taxes … and that just sweetens the deal.

2. Munis Care for the Community. OK, I’ll admit that may sound a bit melodramatic. But here’s the thing: Municipal bonds are issued by state and local governments to fund the construction of schools, roads, bridges, hospitals, housing projects … the list goes on and on. So, by investing in municipal bonds, you’re able to support projects intended to build and bolster the communities in which you live and work, and there’s a certain satisfaction in that. You can support the construction of a much-needed medical facility or local firehouse while earning income on the bonds issued to fund it. I’d call that a win-win.

3. High Quality … Talk of municipal defaults makes for provocative headlines, but the truth is that defaults are quite rare, even in the wake of the Great Recession. I’ll discuss the recent developments in troubled Detroit in a future post, and we offer overarching views in State of the States and Local Governments, but ultimately, the data is telling. Moody’s conducts comprehensive analyses of municipal and corporate bond defaults and has consistently found municipal bond defaults to be infrequent and isolated events. The credit rating agency counted only 71 muni bond defaults over the period 1970-2011 compared to more than 1,800 corporate bond defaults over the same timeframe.* Moody’s data further shows that relative to corporate bonds, municipals have proved much safer and provided higher recovery values. This is partly because state and local governments have tacit social, economic and political motivations to continue providing facilities and services to their stakeholders.

4. … Generally Lower Volatility. It’s not that munis don’t experience the highs and lows of the financial markets. In fact, we saw this in dramatic fashion in late May and June. But history shows us this is the exception rather than the rule. Typically, munis’ response to market-moving events is much more muted than that other fixed income assets. This intrinsic cushion has made for a relatively smoother ride for muni investors over the long term.

The municipal bond market has evolved considerably over the years. It weathered major tax reform changes in 1986, and the loss of big investors in the aftermath. Between the 1990s and 2000s, it saw the rise and fall of municipal bond insurers. Five years after the 2008 credit crisis, it has completed its transition from an interest-rate-based market to one driven more by credit events. Although I doubt I’ve seen it all, I have lived and invested through enough to know that I still like what I see today.

D2 Capital Management's Tax Free Income Portfolio consists of a diversified mix of highly rated municipal bond mutual funds.  The Portfolio currently has a 2.60% SEC 30 day yield and a 3.28% trailing 12 month yield which results in a 4.55% tax equivalent yield for an investor in the 28% Federal Income Tax bracket (as of 11 July 2013).

The information contained in this article does not constitute a recommendation, solicitation, or offer by D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 

 The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville.  The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association.