Your Questions About How To Invest In Bonds

Jenny asks…

lottery winner who is going to invest in utility bonds and a savings account using the following data:?

Assume that her total winnings are $ 200000,
that the utility bonds will pay 7 percent per year,
and that the savings account will pay 3 percent
per year.

How much should she allocate to each investment
in order for the yearly incomes from them to be the same?

Utility Bonds: $
Savings Account: $

John answers:

Lets call x the Utility Bonds and y the Savings Account

x*0.07 = y*0.03

Assuming she has to invest everything

x+y = 200,000
x = 200,000-y

Plug that in to the above

(200000-y)*0.07 = y*0.03

14000 – 0.07y = 0.03y
14000 = 0.1y
y = $140000

x = 200,000-y
x = 200,000-140000= 60000

So she would put

$140000 in Saving Account and
$60000 in Utility Bonds

Then the yearly income from both would be $4200each so $8400 a year

David asks…

How to invest in the stock market?

I am looking for reputable guides and books on investing. I am starting to have a bit more cash these days and I have people I know who have been doing very well in the stock market. I know nothing of these and would really like to learn how to trade stocks, invest, bonds, derivatives, etc. I was looking at books on Amazon but there are so many and I want to books that take into account what has happened during the recession and such for good measure. Any suggestions?

John answers:

An introductory book like _Stock Markets for Dummies_ is a good place to start.

Investors Business Daily (IBD) is a solid daily resource (and its complement, www.investors.com ). It’s a better newspaper than the Wall Street Journal and it is built around a particular approach to trading. You could read _How to Make Money in Stocks_ by William O’Neil too–he’s the founder of IBD.

Search your local library for other books on stock investing. Try to absorb as much knowledge and understanding as you can. Eventually, you should open a brokerage account and paper trade for a while–this is practice (not real money), which you should do extensively before you put any real money at risk.

John asks…

At 27-years-old, how much should I invest in Bonds vs. Stocks or ETFs?

My overall portfolio is currently $26,000 (probably small potatoes for big-time investors), but I’m wondering how to best invest at the moment. We currently have about $3,500 cash and $22,500 in mostly ETFs, but I was told it might be a good idea to invest some of this in bonds or hedge funds.

We can be moderately aggressive since we foresee a minimum 5-year continued investment, and considering our relatively young age. Any thoughts/suggestions? Thanks!

John answers:

First, your investment choices should involve some assessment of current economic and financial conditions, some expectation about future events, and some assessment of specific investments and how they will perform in the future. Not “how much should I invest in this or that investment vehicle”.

Second, some disagree with John Bogle on the subject of ETFs, but I think he is right. In my opinion and experience, if Wall Street pushes a new product hard as they have done with ETFs, that is proof the new product is good for Wall Street, and not for the small investor. But, read the article referenced below, research it further, and decide for yourself.

Third, when interest rates go down, bonds go up. Interest rates are at 30+ year lows. How much lower do you think they can go? Can they go lower? Sure, but is it a good bet? In my opinion, it is a bad time to be invested in bonds, but it is a good time to be selling bonds and investing the money in something that is a bargain.

That leaves cash, stocks, real estate, and hard assets such as commodities, including precious metals. According to Jim Rogers, agricultural commodities and precious metals (the latter on dips) are the place to be right now. A blog that follows his public comments is given below. Research him yourself first; don’t take my word that his advice is respectable.

Lastly, I suggest that you increase your cash position. You never know when markets will unexpectedly tumble, your investments will get hammered, and you will come across a really great investment opportunity at the same time. Rogers likens it to coming across a bag of money sitting on the ground. You need some buying power when such opportunities arise.

That’s my advice.

Steven asks…

Would investing in Bonds be a good idea?

I’m eighteen years old and have been thinking of possible ways to invest my money for the future and was wondering if investing in bonds from my local bank would be a smart and secure way to do it. Now I don’t know too much about bonds and was wondering how much I might earn in interest or if a bond could be affected by bad economic conditions. So if anyone could help me out I’d really appreciate it.

John answers:

You don’t really want income (bonds) when you are 18.
You need capital growth (assets)

James asks…

how much money is invested in bonds and how much in certificates of deposit (more info below)?

Susan purchased some municipal bonds yielding 7% annually and some certificates of deposit yielding 9% annually. If Susan’s investment amounts to $19,000 and the annual interest is $1590, how much money is invested in bonds and how much in certificates of deposit?

John answers:

Total amount invested: B + C = 19,000
Total interest per year: .07 B + .09 C = 1,590

C = 19,000 – B
.07 B + .09 (19,000 – B) = 1,590
.07 B + 1,710 – .09 B = 1,590
120 = .02 B
B = 6,000
C = 13,000

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