Anticipating the September 2016 Fed Announcement

September 21, 2016 by Jason Soloman

Markets and The Fed

Unfortunately, for the last 7 years, financial markets have moved based on the expectations and decisions of the federal reserve instead of from fundamentals, technicals or any other historical metric. Tomorrow’s Fed announcement will likely continue this unprecedented and unwelcome pattern.

Should the Fed raise rates, we would expect that equity markets, in the short term, would tumble. Why do we expect the market to drop if the Fed chooses to raise rates? We believe a substantial increase in rates for an extended period of time would create this type of volatility because:

Increased interest rates on new mortgages absent of inflation would suggest a decrease in home values due to rising borrowing costs.
Corporate P&L’s would likely drop because higher rates would increase their cost of debt.
Poor auto sales may result from the inability to finance at 0%.
Investors could aggressively withdraw from bond funds out of fear that their principal will erode.
A trickle down effect from the above and many more industries will be negatively impacted from this change.

If they decide rates should remain unchanged, we would expect the recent historical equity market highs to be re-tested.

Sensitivity to Rates Rising

The equity markets have shown on numerous occasions how sensitive they are to Fed speak. In the last year, we’ve witnessed how 2 small suggestions and an actual rate hike from the Fed sent equity markets quickly below their 50-day moving average.

VIX

The CBOE volatility index (VIX-also known as the fear gauge) is also hypersensitive to changes from the Fed. In the last few weeks, the VIX was resting near 52 week lows, suggesting complacency in the market. Complacency ended abruptly when a Fed chairperson suggested a rate increase in September may be warranted. After this announcement went public, the VIX catapulted over 70% in just a few short days. As it stands now, the day before their announcement, the VIX is hovering around 16 (in 2008 the VIX reached 80).

Year End Tax Planning

The 4th quarter is less than two weeks away. Get ahead of the game by reaching out to your CPA/tax team. Reaching out now, when your tax team has down time, will allow you to:

Have a solid estimate of your year end tax bill before the year ends. This will provide you ample time to react and plan for your final bill.
Ask your CPA about a variety of tax strategies that they may not have time to discuss during their busy season.
Re-connect with one of the most important people in your financial life.

For more information about your investment options contact:

Jason Soloman, The Investment Professor, Tactical Investment Advisors LLC

Phone: (980) 233-9770

Email: info@investmentprofessor.com

Address: 19825-B #149, N Cove Rd Cornelius, NC 28031

The information in this blog post is not intended as tax, financial, insurance or legal advice. Please consult a licensed professional for specific information regarding each individual situation. This post was developed and produced on a topic that may be of interest to the general public. The opinions expressed, and the material provided are for general information only and should not in any way be considered solicitation.

8 Important Financial Advantages from the Investment Professor

June 30, 2016 by Jeff

The financial world is a crazy place; full of change, chance and opportunity. How does anybody across the country capitalize on the future when there are so many economic variables? As evidenced by the recent Brexit, the United Kingdom is preparing its transition away from the European Union (EU). Economic conditions change, as do financial portfolios and investments. For the average investor across the U.S., it takes a clear understanding of financial planning, life insurance decisions, retirement considerations, investment strategies, financial reviews and more to build success. In 2016, financial investments need to adjust as the financial markets do.

Coast to coast, the Investment Professor offers the following eight advantages for prospective clients:

Free independent review analysis

Accurate and timely investment insights

Retirement income planning

Annuity education

401(k) rollover strategies

Financial planning solutions

Financial advisement

Life insurance information

Over the next few weeks and months, there will indeed be increased market volatility across the country, the Investment Professor can help clients with strategy and education; these are the key variables to financial success. It is important that clients receive the right information and build a success plan, unique to each individual. Each situation is different, unique and distinctive. What is good for one client might not be the best for another. There is always an array of questions that need answers. They could involve investments, financial planning and insurance. The need for the right answers has never been more important.

Investment Professor helps investors from coast to coast become better clients. People need to make informed decisions about their life savings and they want it handled by an investment strategist; one they know, like and trust. It is all about relationship. Know we are a call away.

Our goal is a simple one. We help clients grow. It is our guiding principle. We help investors with financial insight, estate planning, investment reviews, and portfolio assessments. And we provide this analysis free of charge! Our hope is that the information helps improve your financial education and helps you make more informed decisions. Maybe you’ll choose the Investment Professor, maybe not. At the very least, we want investors walking away asking more questions and seeking the right answers. Before making a choice about money and finances based on intuition, call Jason Soloman at 980 233 9770 and he will provide you a FREE and CONFIDENTIAL opinion of your portfolio.

The Investment Professor is more than financial advice. We are your partner in success.

This blog post from the Investment Professor is meant to be informational in nature only. Before considering the purchase of any investment product, it is important to do due diligence and consult a properly licensed professional. Each investor is different and specific questions relate only to individual circumstances.

We would love to hear from you. Please reach out directly:

Jason Soloman
Phone: (980) 233-9770
Email: info@investmentprofessor.com
Address: 19825-B North Cove Rd #149, Cornelius, NC 28031

Check us out on YouTube

Find us on Facebook

Visit our website

Photo: Chrisroll, freedigitalphotos

Brexit causes some investors to exit

June 24, 2016 by Jason Soloman

According to the yahoo article found here, Jamie Dimon and Lloyd Blankfein have delivered memos to their clients about the recent vote that will remove Britain from the European Union, also known as Brexit.

Read their Brexit quotes below.

Dimon’s memo:

British citizens voted yesterday to begin a new, independent relationship with the European Union. This decision is a seminal moment in European politics and in the history of the United Kingdom.

J.P. Morgan has 16,000 employees in the U.K. We are extremely proud of the work they do and our long history in the country. Regardless of today’s outcome, we will maintain a large presence in London, Bournemouth and Scotland, serving local clients as we have for more than 150 years.

The framework of the U.K.’s engagement with the EU, including trade agreements, will be negotiated over a period of years. For the moment, we will continue to serve our clients as usual, and our operating model in the U.K. remains the same.

In the months ahead, however, we may need to make changes to our European legal entity structure and the location of some roles. While these changes are not certain, we have to be prepared to comply with new laws as we serve our clients around the world. We will always do our best to take care of our people and do the right thing during times of change.

We recognize the potential for market volatility over the next few weeks and we are ready to help our clients work through it. As of today, there are no changes to the structure of our clients’ relationships with JPMorgan Chase or their ability to work with our firm, but again this may change in the coming months or years.

We are hopeful that policymakers will recognize the immense value created through a continued open economic engagement between the U.K. and EU members. As negotiations offer more clarity over the coming months, we will communicate with you and with our clients regarding any relevant changes.

Jamie Dimon, Daniel Pinto, Mary Erdoes

Blankfein’s memo:

As you may have seen by now, the British people have voted to leave the European Union, and we respect this outcome. We have had a strong team focused on this potential result for many months. There is no immediate change to the way we conduct our business. A process of negotiating the terms of the exit will now begin, and is expected to take a considerable period of time. Goldman Sachs has a long history of adapting to change, and we will work with the relevant authorities as the terms of the exit become clear. We are committed to our people and our clients, and will work diligently to ensure the best possible outcome. We will continue to communicate with you as relevant information becomes available.

Lloyd C. Blankfein

Gary D. Cohn

The markets are primed for action. Even before Brexit, the S&P 500 failed to breach previous record highs 3 times in 12 months which is often a signal for turbulence ahead. Here’s an annotated chart I sent to a client on June 20th, 2016. It doesn’t usually play out this way, but the timing of this was pretty amazing.

S&P 500 Triple Top

In addition to the Brexit news, the U.S. jobs report recently delivered a negative surprise, and previous month jobs number were revised down.

Things are bad, if they weren’t the world would not be at zero to negative interest rates.

Buckle up for the ride, I expect a lot more volatility through the end of the year.

By the way, volatility does not mean the market will go straight down.

My hope is that you take this information, research, do more research, build a plan, and plan for your plan to be wrong.

Take a few minutes and consider your unique situation. Next, write down your thoughts and concerns. Think about your thoughts and words again. Finally, share your findings with me by calling, emailing, or filling out the form below.

-IP

For more information about insurance and your investment options contact:

Jason Soloman, The Investment Professor, Tactical Investment Advisors LLC
Phone: (980) 233-9770
Email: info@investmentprofessor.com
Address: 19825-B #149, W. Catawba Ave, Cornelius, NC 28031

Suggested top tags: Leaving Corporate, Benefits, Group Life Insurance, Individual Life Insurance, Investments, Investors, Lake Norman, money, Charlotte, Investment Professor, stocks, mutual funds, life savings, Cornelius, financial advice, financials, retirement, income, financial planning, Term Insurance, Whole Life, estate planning, North Carolina, Jason Solomon, portfolio, trust, job change, Annuity, Annuities, Davidson NC, insurance, life, investment, protection, shelter, family, finance, people, life investment

Stock Market Volatility and Your Money

February 3, 2016 by Jason Soloman

What should I do with my stock?

The past 4 weeks delivered significant fluctuations across financial markets, so what should I do with my stock? Great question, but to help you answer that question you should ask yourself:

What else am I invested in?
What is the objective of my entire portfolio and where does this stock fit in?
How large is my pain tolerance (at what point will I panic and sell)?
Do I understand the financial statements of the company?
Do I understand how the economy will impact the company?
Will I continue buying more shares if it drops (dollar cost averaging)?
Will I hold onto it through a recession?
Is my position hedged (See: Hedge Definition)?

We’ve seen some volatility in the recent past, but this time I think it will continue through the end of the year. If you’re not ready for a bumpy ride, you may want to consider some hedging strategies or possibly selling some of your shares.

Option Values Not Correlating

Although financial markets are seeing solid movement, option values have not followed suit. Instead, volatility premium (measured by the VIX) remained subdued while violent market swings took over, leading to skewed option valuations.

Why would this happen? My guess is that markets appear to be anticipating:

The same global government intervention AND
The same market reaction to this intervention that we’ve seen since March of 2009.

Government intervention has been one of the main drivers of recent equity market success for the last 7 years. Historically, these global Central Bank free money policies drove violent market rallies- scaring off investor attempts at shorting markets- creating a one sided market full of liquidity holes (details of the liquidity topic would need to be addressed in a book).

Mohamed El-Erian recently spoke about this liquidity problem on CNBC saying, “…let’s not forget there’s very little countercyclical liquidity, which means, when we hit a small air pocket, it turns out to be large.” See the Article Here

Great, now we can expect more of the same inability to navigate?

Not so fast.

The market movement is exciting for active traders, but this pattern surfaced a few times before. A 10% drop rocked the market 3x in the past 5 years.

Recent equity market movement flirted with historically crucial market valuations. In the past, these levels triggered more monetary easing and somewhat built temporary synthetic floors.

True to form, January’s movement also triggered monetary easing when the European Central Bank (ECB) unleashed more “unlimited” support and easing initiatives. Because one major nation isn’t enough, Bank of Japan (BoJ) ventured into the first ever NEGATIVE INTEREST RATE POLICY PROGRAM (first for a leading economy).

The US Federal Reserve also held a meeting this past week where they halted all activity on rate changes. That’s the first step in the changing dynamic of the markets and could be a sign that the market cycle is finally turning. IT IS THE FIRST TIME THE FED HAS HALTED POLICY and did not introduce new easing programs in response to markets.

Global Central Banks Policy Impact is Tapering

Although the recent market movements didn’t significantly alter option valuations, our recent analysis and new expectations show that global government intervention attempts are having notably less impact than in the recent past. For the first time since March of 2009 we are seeing diluted reactions to continued monetary policy easing. Instead of the violent reactions to loose monetary policy, the pattern broke and the last few weeks displayed markets that do not appear to be as excited about continued monetary easing.

This shift in human behavior/market reaction marks a change to the overall probability of a negative thesis playing out (negative, not the end of the world). Combine this new pattern with some additional catalysts and this could be the start of a change in market cycles.

Margin Debt vs. DJIA -a pattern to consider

The chart above shows how recent market corrections have strong correlations to extreme increases in private margin debt. This past year private margin debt set a record (see: irrational exuberance) and even exceeded values of the dow jones industrial average which has only occurred once in history: the peak of 2007.

What is margin debt?

It is people investing in financial markets with borrowed money. Right now we have a plethora of investors in the financial markets based on money that is not actually theirs.

How does this answer my earlier question…what should I do with my stock?

My hope is that you take this information, research, do more research, build a plan, and plan for your plan to be wrong.

-IP

For more information about life Insurance choices and your investment options contact:

Photo: David Castillo Dominici, FreeDigitalPhotos

Rule 48

August 26, 2015 by Jason Soloman

Rule 48. Exemptive Relief — Extreme Market Volatility Condition

(a) In the event that extremely high market volatility is likely to have a Floor-wide impact on the ability of DMMs to arrange for the fair and orderly opening, reopening following a market-wide halt of trading at the Exchange, or closing of trading at the Exchange and that absent relief, the operation of the Exchange is likely to be impaired, a qualified Exchange officer may declare an extreme market volatility condition with respect to trading on or through the facilities of the Exchange.

(b) In the event that an extreme market volatility condition is declared with respect to trading on or through the facilities of the Exchange, a qualified Exchange officer shall be empowered to temporarily suspend at the opening of trading or reopening of trading following a market-wide trading halt: (i) the need for prior Floor Official or prior NYSE Floor operations approval to open or reopen a security at the Exchange (Rules 123D(1) and 79A.30); and/or (ii) applicable requirements to make pre-opening indications in a security (Rules 15 and 123D(1)).

(1) (A) Before declaring an extreme market volatility condition, the qualified Exchange officer shall consider the facts and circumstances that are likely to have Floor-wide impact for a particular trading session, including volatility in the previous day’s trading session, trading in foreign markets before the open, substantial activity in the futures market before the open, the volume of pre-opening indications of interest, evidence of pre-opening significant order imbalances across the market, government announcements, news and corporate events, and such other market conditions that could impact Floor-wide trading conditions.

(B) Such review shall be undertaken in consultation with relevant officers of NYSE Market and NYSE Regulation, as appropriate. Following the review, the qualified Exchange officer or his or her designee shall document the basis for declaring an extreme market volatility condition.

(2) The qualified Exchange officer will, as promptly as practicable in the circumstances, inform the Securities and Exchange Commission staff that an extreme market volatility condition has been declared, the basis for such declaration, and what relief has been granted.

(3) An extreme market volatility condition may only be declared before the scheduled opening or reopening following a market-wide halt of securities at the Exchange.

(4) A declaration of an extreme market volatility condition shall be in effect only for the particular opening or reopening for the trading session on the particular day that the extreme market volatility condition is determined to exist. The Exchange may declare a separate extreme market volatility condition on subsequent days subject to sections (b)(1) through (b)(3) above.

(5) A declaration of extreme market volatility shall not relieve DMMs from the obligation to make pre-opening indications in situations where the opening of a security is delayed for reasons unrelated to the extreme market volatility condition.

(d) For purposes of this Rule, a “qualified Exchange officer” means the Chief Executive Officer of ICE, or his or her designee, or the Chief Executive Officer of NYSE Regulation, Inc., or his or her designee.

Stock Market Conditions are Choppy

July 29, 2015 by Jason Soloman

Market Conditions

In terms of gains and losses, the U.S. Equity Markets remain relatively stagnant for the year. If you fell asleep in January and woke up today you would not have missed much, yet you would have missed a lot. The market is moving which is great but the activity has lead no where- so far. The largest variance from December 31st through today was about 3.5%- this is not enough movement to make an impact for anyone in any strategy. We like the chances of the stagnation ending soon, as we’ve seen technical and fundamental indicators shift and watched major indices rattle major markets across the globe.

Dalio Concerned

The last month of action in the Asian stock market conditions felt like riding in a small boat during a windy day on Lake Michigan. Greece nearly crumbled and China, the world’s fastest growing economy, is trying to recover from a 30% drop in their major index in just about a month’s time. One of the most well-known hedge fund managers in the world, Ray Dalio, was recently quoted in the Wall Street Journal saying, “Our views about China have changed. There are now no safe places to invest.” Dalio’s comments seemed to be overstated, as Chinese markets rallied 16% from their recent bottom- until Americans woke up to what could be the early stages of a nightmare yesterday morning; the Shanghai Composite was down over 8% in a single session of trading! To put that into perspective, most investors are satisfied if they earn 8% in a year; an 8% drop in a day is a major blow! The movement in Asian markets remind us that:

Even the best markets in the world will feel pain at some point and
Market sell-offs usually happen quicker and more violently than market runs

Huge volatility rips Asian Equity Markets

Schiller Index

Since the world is so closely connected now, we believe a continuation in the Chinese sell-off COULD spread across the globe and cause the seemingly unbreakable U.S. markets to follow suit. In addition to China’s volatility, the CAPE Index- an indicator created and published by Nobel Prize winning economist Robert Schiller- is at an historically high valuation. Following the link below to a CNBC interview, you will hear Schiller explain that his indicator is “…higher than it’s been except in 1929, 2000, and 2007.” Interestingly enough, those years were all followed by a U.S. equity market meltdown. Schiller goes on to say, “people keep pointing out the bubble and years go by and that’s when the bubble finally bursts.”

http://www.cnbc.com/2015/07/01/its-the-most-boring-market-ever-and-thats-bullish.html

China’s market volatility, the probable interest rate increase in September, and several other indicators including the CAPE mentioned above keep us confident in our thesis that the U.S. bond and equity markets will have a solid correction sooner than later.

P.S.
If you find value in this article please share it on social media and Subscribe!

Stock Market Trend Changes Can Rip Your Face Off

February 4, 2015 by Jason Soloman

When stock market trends change, they happen in a hurry leaving mom and pop investors feeling like the town of Havasu would if the Hoover Dam broke.

It was February of 2007 and John and Erica were sitting pretty for retirement. Their house was paid off and their liquid investments were valued near $1,000,000. The fall of 2008 was just around the corner and it was going to be their last year running the cross country ski apparel line RaceDingo.

Lowe’s stock represented $550,000 of their wealth, after all it was a smart investment and a safe investment. The Motley Fool regarded it as a no brainer to have in your portfolio, (See Woes Slow at Lowe’s) so what could go wrong?

A lot… take a look at the chart below.

Lowe’s shareholders felt pain in 2008/2009.

It’s a sad but familiar story. In less than a year LOW was trading near the $13/share range and John and Erica had an unpleasant change to their retirement plans.

Thank goodness John and Erica listened to their advisor and didn’t have all of their eggs in one basket. They diversified across the following mutual funds:

Fidelity Freedom Fund 2020- FFFDX
Hartford Capital Appreciation Fund- ITHAX
Vanguard Balanced Index Inv- VBINX
Vanguard 500 Index- VFINX
Cavanal Hill Intermediate Fund AAIBX

Let’s look at how these funds performed during the same time period.

Fidelity Freedom Fund Took a Pounding in 2008 and part of 2009.

Hartford Capital Appreciation Fund Did not perform well in 2008 or the first part of 2009.

Vanguard Balanced Index Performance in 2008.

Vanguard 500 Index 2008 Performance

Intermediate Bond Fund with low reward potential was socked in 2008!

Wait, John and Erica were diversified across mutual funds that hold both stocks and bonds, isn’t diversification supposed to smooth out their ride?

If diversification can’t smooth the ride, what can investors count on as a safe investments or smart investments knowing that stocks and bonds COULD fall very fast at the same time?

What is truly sound investment or stock advice for investors and retirees?

I’m not a doomsday investor and I’m not writing about this because “I’m sweet and always want to be different” like my pal Seth always tells me.

I’m talking about these issues because I’m realistic, I’m aware of market risk, and I know how quick stock market trends change.

I want you to know there are other ways to plan for your future.

You don’t have to invest dramatically different from what you do now, you can even keep your diversification strategy if you wish…just add another piece to the pie to make your investments more tolerable when stock market trends change!

Last week Switzerland removed its exchange rate floor against the Euro (CHF/EUR) and the market activity that ensued was was shocking, powerful, and hopefully eye opening for investors across the world.

The decision by the swiss bank left well known Futures Commissions Merchant FXCM, the Everest Macro Hedge Fund and many other hedge funds ready to close their doors.

January 16th 2015 Kristen Scholer from the Wall Street Journal reported: “Shares of FXCM were down more than 80% in pre-market trading after the firm, a platform for retail foreign-exchange traders, said late Thursday that clients experienced significant losses as a result of the sudden moves in the Swiss franc.”

Below is a picture and a link to the Wall Street Journal Article:

FXCM was nearly out of business overnight.

American markets and individual securities halt trading when certain stocks or markets get rocky (SEC Trading Halt Rules) but there is not a guarantee instruments will recover once trading resumes.

You’re probably reading this saying “ my investment strategy is not that risky, I don’t trade the currency markets I stick to safer stock, bond, and mutual fund holdings, or I don’t invest in stocks.”

It’s not safe to assume your investment is a smart Investment, a safe Investment or a conservative Investment.

Check out FINRA’s warning about your bonds. Explore the risks in bond and balanced mutual funds. Perform a stress test on your safe investment. If you think your broker did this-guess again, my bet is that your brokers didn’t or they might now even know how to measure those risks (scary to take stock advice from a broker who you thought was an expert but was really just a salesperson)!

The S&P 500, Lowe’s stock (LOW), balanced mutual funds, etf’s and bond holdings are not excused from big losses like the CHF/EUR. Today your LOW Lowes stock is trading at nearly $70/share. Your Fidelity Freedom Fund 2020 and nearly every other mutual fund and stock index are sitting at or near all time record levels.

Don’t be surprised, shocked, or angry at wall street if your investments trade at half their value soon. It happened 5 short years ago and there’s more than a handful of major issues in the U.S. and across the globe that could turn your safe investment, Lowe’s Retirement, or whatever you want to call your portfolio into a dog (but not a cute dog like Griffin).

Adorable Dog

The chaos from the removal of Switzerland’s peg to the Euro could be one of many more changes that could send your investments to a place you don’t want them to go. Stocks, bonds, and mutual funds on their own are all susceptible to unfavorable changes at any given time, so:

What’s your investment strategy?
What Investment Advice is your advisor giving you?
Do you have insurance on your investments?
Do your investments match your objectives?

Ask a few more questions, interview a few more advisors, and think outside the box.

If you feel this was valuable investment advice:

Spread the love by sharing this article through Facebook or LinkedIn via the social share buttons on this page
Email/Call us for a 2nd Opinion- 980.233.9770
Subscribe to Our YouTube Channel
Subscribe to our NewsLetter
Download our free Annuity e-Book

This presentation is for informational purposes only and is not INVESTMENT ADVICE, TAX ADVICE, or LEGAL ADVICE. THE INFORMATION IN THIS ARTICLE MAY OR MAY NOT APPLY TO YOUR SPECIFIC SITUATION. CONSULT WITH A FINANCIAL, LEGAL, OR TAX TEAM ABOUT YOUR SPECIFIC SITUATION.

Where Should I Rollover My 401k- Are Bonds Safe?

June 23, 2014 by Jason Soloman

Retirement is near, your 401k is looking great from all those years of hard work and all you want is to draw a little interest off of your hard earned assets with as little risk as possible. So:

Where should I Rollover my 401k and where should I invest for retirement?

For many people, the answer to this is bonds.

Bonds are trumpeted as one of the safest investments everywhere you look, but are bonds really safe?

Your parents told you, the advisor down the street probably told you, and the licensing exams financial advisors took said bonds are the safe play for conservative investors!

Well this is going to be a short article … I’m going to buy some bonds and and call it a retirement.

Ok…hold your horses..Slow down and lets start using the left hemisphere of our brain ok water boy?

Before we decide our best friend, financial advisor, or family member’s financial advice is made of gold let’s dig into how bonds behave and make an independent decision about their safety as of 2014!

Bond Basics

If you buy or hold bonds you basically become a bank. You are lending money to the bond issuer who will promise to return your money at a specified time and pay you interest while you let them use your funds. For example, North Carolina needs to raise some cash for some projects some up. So they issue some North Carolina bonds to the public. Joe Investor buys some North Carolina bonds and receives regular interest payments (as long as the North Carolina Bonds can pay) from apple until the bond expires or in come cases is called.

How Much Do Bonds Pay?

Typically the rate the issuer pays you is fixed at issuance and is determined based on a number of variables including the risk of the bond issuer (the company or government entity who will hold your money), the risk free interest rate, and the amount of time the issuer will hold your money. So how much do Bonds pay? The so called safest 10 year is currently paying 2.6%.

An Inverse Relationship

Bond prices and interest rates have an “inverse relationship” meaning, when one goes up, the other goes down.

For example:

If you invest $300,000 into a 10 year bond paying 6% you stand to earn $18,000 per year which sounds great right now, but what if a few years from now rates rise and new bonds with the same face value and risk are paying 8%? Your $300,000 could be earning you closer to $24,000 per year! In order for you to earn more interest you would have to sell your bond at a significant loss to trade up to a higher yielding bond with the same risk.

Of course, if rates fall and you invest $300,000 into that same 10 year bond paying 6% you could sell your bond early for a profit and look for a new investment.

Again, with interest rates at historical lows where will they go in the future and what does that mean for your bond holdings?

Although it may take some time, rates will rise in the future and if this happens sooner than later it will create a big problem for those who have liquidity needs or are chasing higher interest but currently hold existing bonds/bond funds. Just look at what FINRA (regulatory authority) has to say about the impact of rising rates.

READ THE HIGHLIGHTED SECTION.

If you hold a corporate bond with a duration of 8.4 and interest rates rise 2% you could lose 15% of your value if you need to sell your bond. We saw a nearly 2% change from last May through the end of the year… imagine if 10 year rates go back to normal or worse go to double digits… the losses can stack up very quickly. Click here for the detailed report.

So…are Bonds Safe?

For a long time the answer was yes…hell bonds have been in a bull market since the 1980’s!

Now, I’m not so sure. Regardless of what I think remember the relationship between rates and bond values. For 30+ years rates have steadily dropped to where they are today.. roughly 2.5% on the 10-year. This is why baby boomers put so much trust in bonds. The problem is that history won’t likely repeat itself and the reason is in the chart below!

10-Year Note Chart

For the non expert…. the green line represents an interest rate of zero. Zero is the lowest point for interest rates… again we are only roughly 2.5% away from that floor! Remember if interest rates rise bond values fall.

Since interest rates will stop dropping at zero the only questions are:

How much will they rise
When will they rise

Ok Jason this sounds boring… what’s this mean to me?

It means anyone who plans to invest in bonds right now is playing against a stacked deck. To get any type of decent interest (5%+) you have to take on more risk than you would have in the past to get the same interest.

So if you are close to retirement and asking yourself:

Should I invest in bonds?
Where should I rollover my 401k?
Where should I invest?

Ask yourself how you will feel if your neighbor is getting 6% in an FDIC insured CD while you are seeing a 35% loss on your bonds and only getting a 4% payout each year. This is a scenario that could be very real in the future if 10 year rates get back to a measly 6%.

Before you get emotional and tell me how safe bonds are just step back and use logic.

Think about the odds of your success with rates so close to 0% and decide if you want to be the house or the schmuck’s going to the casino.

Yes you can hold the bond to maturity and yes as long as the bond doesn’t default you will get your original investment back. But, if you hold bonds inside mutual funds it may not be your choice to hold on…if investors inside of mutual funds with heavy bond holdings start selling because they are seeing losses in their accounts fund managers will be forced to sell holdings…this may not be a big deal.. but if it becomes contagious people holding bonds and bond funds will start to see some pretty ugly numbers in a hurry.

Ok Professor But The Fed will raise rates when they want so losses will happen slow and nobody will be forced to sell:

The Fed has been printing money faster than the ink can dry and although their plan is to slowly increase rates, inflation may force their hand sooner than they want and ultimately force them to raise rates sooner and faster then they anticipated.

WARNING

If you are invested in bonds, bond funds, balanced funds, target date funds or have an advisor that uses bonds to hedge your risk you better understand what you are getting into.

If your mutual funds have the name:

Balanced
Income Builder
Income
High Yield
Target Date

Consider hearing a 2nd opinion from someone who thinks bonds could burn you in the near future. Also, click the link below for an articl from CNBC where Soc Gen talks about their prediction of the 10 year at 6% by 2017 CNBC.

Ok Professor I get it. You’re scared bonds could let people down over the next 10 years…so where should I invest?

Equities?
CD’s?
Annuities?
Tactical Asset Allocation Programs?

To answer that question one would need a lot more information about you. Feel free to ask us questions below.

If you couldn’t understand to this point, our answer to the question: Are bonds safe is as follows:

Due to the low interest rate environment we believe bonds are not only a silly investment in 2014, they are also quite risky.

Quick Answers:

Should I Invest in bonds: Not right now
Are bonds a safe investment: Not right now
Are bonds safe CD Alternatives: Not right now
Are bonds safe Annuity Alternatives: Are annuities safe?
Where should I rollover my 401k: Not in bonds right now!

Now what? If you have a concern about any part of your portfolio then I would suggest getting a second pair of eyes on your investments.

Let a professional learn about your investment goals and determine if the investments you have are in line with your objectives.

Learn more about the Author at http://jasonsoloman.com/about/ and be sure to visit the investment professor You Tube page for investment education videos!

Of course you can CALL 980.233.9770 or EMAIL info@investmentprofessor.com and we will be happy to offer you a FREE 2nd opinion.

If you like this article please share it or like it with the social media icon! Thanks!

How to Choose a Financial Advisor

June 4, 2014 by Jason Soloman

Choosing a Financial Advisor can be a scary thought, especially if you are not a financial expert. In fact, choosing a financial advisor is enough to make you want to have a drink! It can be much easier however, if you ask the financial advisor questions listed below.

What should I look for when choosing a financial advisor you ask? Keep reading below to find the answers! [Read more…]