Your Questions About How To Invest In Bonds

Mandy asks…

Stocks/Bonds & Investing question?

Hello, I am 19 and am very interested in investing. I really know nothing about investing at all, and would like some advice to help develop some ground work as to how I will go about doing things. I am looking to to long term invest. Any questions let me know, and return after to check the additional details.
how would I invest in an idex fund, and is there any other advice you can give? This is all foreign to me.

John answers:

Since you have completely no experience I suggest that you do not go anywhere near a broker until you learn the basics.

Online trading in the stock market offers unlimited potential profits….but….The first thing you need to know is that most beginners lose money. Most people rush in to trading looking for easy money without really knowing what they are doing.

Try virtual trading before you risk real cash.

Virtual trading will let you see if you can make money and will give you the knowledge and experience that you need to become successful without risking your savings first.

You will learn a lot and you will still have your start up fund in the bank until you know you can make money from trading.

Daniel asks…

Stocks and Bonds Problem Help?

suppose you estimate the expected return of stocks to be 10%, the standard deviation of stocks to be 20%, the expected return of bonds to be 5.5%, the standard deviation of bonds to be 8%, the correlation of stocks and bonds to be zero, and the risk-free rate (cash) to be 3.5%. Your answers should be based on comparisons of the following portfolios, unless otherwise indicated: 100% bonds, 90% bonds/10% stocks, 80% bonds/20% stocks, …, 20% bonds/80% stocks, 10% bonds/90% stocks, 100% stocks.

1.a. Find the global minimum variance portfolio mix between stocks and bonds. b. Why are stocks included in this mix even though they are riskier than bonds?
2.Come up with a set of reasonable alternative assumptions (i.e., different estimates for the risk of stock and bond returns as well as their correlation) such that the new global minimum variance portfolio contains a higher fraction of stocks than in a. Explain the intuition behind the result.
3.Assuming that an investor can invest in stocks, bonds, and cash, what is the optimal mix of stocks and bonds? Why is this mix optimal? Describe how risk-averse and risk-tolerant investors should invest.
4.Many balanced fund managers (managers who invest in both stocks and bonds) invest between 50-60% of their holdings in stocks and the remainder in bonds. Come up with a set of alternative assumptions that would deliver an optimal portfolio that invests between 50-60% in stocks. Do these assumptions strike you as reasonable? Why or why not?

John answers:

Aren’t you in the stock market hoping to make money ? What good will answering all these questions do ? Will it make you more money ? There is no “optimal mix” of stocks, bonds and cash – it all depends on the age of the person and risk tolerance, and there are times when the economy is good and a greater ownership of stocks would be appropriate.

Forget this MBA stuff, and invest. Then you can retire early and watch everybody else sit around and waste time doing these insane calculations that are meaningless.

Sandra asks…

Linear Programming Word Problem HELP!?

A retirement fund manager has $2,000,000 to invest in a combination of stocks, bonds, and money market funds. The company requires that no more than $1,000,000 can be invested in stocks and bonds combined. They also require that no more than $1,200,000 can be invested in the combination of bonds and money market funds. Stocks yield an annual return of 10% of the amount invested, bonds yield a return of 8%, and money market funds yield a return of 6%. How much should be invested in each in order to maximize the return?

John answers:

If s, b, m are the amounts to be invested in stocks, bonds and money market funds correspondingly, we’ll have the following Linear Programming Problem:
Maximize { Profit = 0.1s + 0.08b + 0.06m } subject to constraints:
s + b + m = 2 000 000;
s + b ? 1 000 000;
b + m ? 1 200 000;
s, b, m ? 0
The optimal solution (obtained by simplex-method or any solving method) is
Max_profit = 160 000, s = m = 1 000 000, b = 0, so the manager should not invest in bonds.

Donald asks…

how would i go about investing in bonds?

i need to know who i should talk to and where should i go?

John answers:

Visit www.nbtco.com

they take money out of you paycheck and send you a bond every month or so

David asks…

Stocks & Bonds…Which one’s to invest in?

I am currently looking for some stocks and/or bonds to invest a small amount of money in but I don’t know which ones are safe and which ones will give me great returns..?! Is there anyone who can give me some useful tips? How much should I invest? Any help is greatly appreciated!!!

John answers:

Don’t invest in both directly if you are newbies and without sufficient knowledge and experience.

Buy unit trust as your risk could be diversified into many well calculated stocks and bonds which can well be suited to your risk appetite.

You could use the very best brains in your city to invest and manage your investment with a very small fee. You then just relax and watch your money grow.

But first, find a unit trust consultant as soon as possible.

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