In class this week, we discussed the basics of investing in stocks and bonds. Both assets are typically held in portfolios since they have varying benefits and purposes.
Historically, stocks have outperformed bonds and all other investments. By including stocks in a portfolio, the diversification of a portfolio increases and risk is reduced. Further diversification may be obtained by owning stocks in a variety of industries and company sizes. Another benefit of stocks is their liquidity. Since the stock market is perpetually changing, stocks are considered highly liquid. As a shareholder, a stock owner becomes a part owner of the company; therefore, if the company goes bankrupt, a stock owner can only lose the amount of his/her initial investment. Shareholders have the right to any earnings of the company in the form of dividends after other financial obligations are met. the last right shareholders have is voting rights, which are normally executed by a proxy. In conclusion, investors should buy stocks because of their performance, diversification, and liquidity benefits.
Compared to stocks, bonds have a much more consistent trend historically. Bonds are useful diversification tools because they help to balance out portfolios and can smooth the ride for investors. Also, bonds produce a source of steady income and can be a relatively safe investment if held to maturity. To understand how bonds operate, some basic terminology must be introduced. First, par value if the amount referred to the holder at maturity. Bonds can be sold at a discount or at a premium to par value. Second, the coupon interest rate indicated the percentage of the face value that will be paid annually to the holder in interest payments. Third, indentures are documents that outline the terms of the bond contract. Lastly, a call provision allows the issuer of the bond to repurchase bonds before the maturity date. In order to choose a bond, investors must make decisions based on credit quality, maturity, after-tax return, the highest yield to maturity, selling value, and the option of investing in mutual funds. Another detail to consider is the type of bond to buy. Corporate, treasury, agency, municipal, and special situation bonds are available, but they each offer different tax advantages and investment opportunities. To value a bond, calculate the bond yield which is affected by the bond price (may be more or less than face value).
All in all, we have learned that in order to diversify a portfolio and reduce the risk of its asset allocation, an investor must allocate different proportions of his/her portfolio to different investment assets such as stocks and bonds. Investors should consider both bonds and stocks when creating a portfolio.
Article 1 - Requirements of Becoming a CFP
Education
Experience
Article 2 - How Much Life Insurance is Enough
In order to evaluate a family's need for life insurance, an individual must carefully consider the following asset categories:
(November 18 - 24)
Historically, stocks have outperformed bonds and all other investments. By including stocks in a portfolio, the diversification of a portfolio increases and risk is reduced. Further diversification may be obtained by owning stocks in a variety of industries and company sizes. Another benefit of stocks is their liquidity. Since the stock market is perpetually changing, stocks are considered highly liquid. As a shareholder, a stock owner becomes a part owner of the company; therefore, if the company goes bankrupt, a stock owner can only lose the amount of his/her initial investment. Shareholders have the right to any earnings of the company in the form of dividends after other financial obligations are met. the last right shareholders have is voting rights, which are normally executed by a proxy. In conclusion, investors should buy stocks because of their performance, diversification, and liquidity benefits.
Compared to stocks, bonds have a much more consistent trend historically. Bonds are useful diversification tools because they help to balance out portfolios and can smooth the ride for investors. Also, bonds produce a source of steady income and can be a relatively safe investment if held to maturity. To understand how bonds operate, some basic terminology must be introduced. First, par value if the amount referred to the holder at maturity. Bonds can be sold at a discount or at a premium to par value. Second, the coupon interest rate indicated the percentage of the face value that will be paid annually to the holder in interest payments. Third, indentures are documents that outline the terms of the bond contract. Lastly, a call provision allows the issuer of the bond to repurchase bonds before the maturity date. In order to choose a bond, investors must make decisions based on credit quality, maturity, after-tax return, the highest yield to maturity, selling value, and the option of investing in mutual funds. Another detail to consider is the type of bond to buy. Corporate, treasury, agency, municipal, and special situation bonds are available, but they each offer different tax advantages and investment opportunities. To value a bond, calculate the bond yield which is affected by the bond price (may be more or less than face value).
All in all, we have learned that in order to diversify a portfolio and reduce the risk of its asset allocation, an investor must allocate different proportions of his/her portfolio to different investment assets such as stocks and bonds. Investors should consider both bonds and stocks when creating a portfolio.
Article 1 - Requirements of Becoming a CFP
Education
- The CFP Board requires the examinee to complete a college-level program of study in personal financial planning, or an accepted equivalent, including the completion of a financial plan development course registered with CFP Board.
- The bachelor’s degree requirement does not apply when considering eligibility to sit for the exam and must not be met before registering for the examination. The CFP Board does not grant alternatives or exceptions to the bachelor’s degree education requirement.
- This exam assesses the examinee’s ability to apply financial planning knowledge to real life situations and is also designed to assure the public that the student has met a level of competency appropriate for professional practice.
- Before registering for the examination, all individuals should compare the status of their degree program to the requirements set by the CFP Board. If these requirements are satisfied and a bachelor’s degree will be attained before the examination date, the individual may register.
Experience
- CFP Board requires its candidates to have three years of professional experience in the financial planning process, or two years of apprenticeship experience that meets additional requirements. By meeting the experience requirements, an individual indicates to the public that he or she is capable of providing financial planning without supervision.
- The qualifying experience requirements may be met through a variety of activities and professional settings including personal delivery, supervision, direct support, or teaching.
- Applicants must promise to uphold the high standards of ethics and practice outlined in the CFP Board’s Standards of Professional Conduct and must recognize CFP Board’s right to enforce the standards through disciplinary actions.
- When a professional has met the education, examination, and experience components of the certification process, he/she will be directed to complete a certification application. The document will ask each applicant to disclose information for a background check, including a review of all information disclosed on an application. Any matters that may or will bar from someone from obtaining certification are investigated.
- Authorization to use the CFP marks will not be granted until background checks and investigations are concluded.
Article 2 - How Much Life Insurance is Enough
In order to evaluate a family's need for life insurance, an individual must carefully consider the following asset categories:
- Total cash for immediate expenses (final expenses, mortgage, other debts, emergency fund, and education fund)
- Present value of the future income need (survivor's income replacement * money factor)
- Total available assets (savings & investments, retirement savings, other assets, current life insurance coverage)
- Subtract the total investments and current life insurance from total expenses at death to determine how much more life insurance a family needs.
(November 18 - 24)