Financial Ratios and Statistics – FahStats

Archive for January, 2011

The national savings premium bonds program was introduced by Harold Macmillan in 1956 and is defined as the government bond that is priced more than par. These bonds are secure and an easy method of saving your money and also having a chance of getting the tax free prizes. The capital for investors is one hundred percent safe in these bonds.

The national savings premium bonds are broadly classified into two types: callable bonds and non-callable bonds. It should be noted that these premium bonds cannot be owned in joint names or transferred from one person to another. One of the main benefits of these bonds is that a part or all of the premium bonds are open to be cashed at any time you wish. A number is assigned for every 1 euro should which is invested by the bond holder.

Therefore if you have invested a hundred euro you would have hundred chances of actually winning a prize. The prize is free from capital gains tax and can range actually from 50 euro to 1 million euro. There are a number of ways in which you can buy these bonds. You can actually just call the concerned authorities for purchasing a bond or you can also get the required application form from post office. It should be noted that this application form can also be downloaded directly from the net.

You are supposed to invest at least hundred euros as they are supposed to be sold in the multiples of ten euro. The maximum amount of bonds you can hold is up to 30,000 euro. The qualification for applying for these bonds is that you should be at least 16 years of age. If you are planning to purchase national savings premium bonds for children who are under 16 years of age, then those bonds can be bought for the children by the parents or guardians.

The goal of the national savings preium bonds program was to give citizens to confidence to invest in a government-back investment, while also rewarding a few randomly drawn individuals as well. These types of investments are desirable to all types of investors, from those with a conservative nature to those with a bit more risk in their blood. This investment program has proven to be a success and should definitely be included in your long term financial portfolio.

Hell hath no fury like a person who just found out the alternative minimum tax applies to them. The IRS has set up an online tool to figure out if you do.

Alternative Minimum Tax

The alternative minimum tax is a procedure that was set up to keep the richest of Americans from avoiding tax paying responsibilities. As is typical of the federal government, the failed to include any language adjusting for income growth and so on. As a result, the alternative minimum tax creams many taxpayers even though it was never intended to cover them.

So, why don’t our beloved leaders just amend the relevant codes? Politicians giving up money they can spend on wars and favorite, but unnecessary, projects in their districts to keep voters happy? Surely, you aren’t that naïve anymore. Oh, they will talk about repealing or modifying it, but it just never seems to happen. Hmmmm…

To determine if the alternative minimum tax applied to your situation, you have to take a very simple step. Fill out your taxes using both the regular 1040 forms and the alternative minimum tax forms. What a complete waste of time. Fortunately, the IRS seems to agree.

Much like those handy online mortgage calculators, the IRS has taken the alternative minimum tax into the digital world. It has created a new online tool where you can enter the relevant information and find out if you are subject to the alternative minimum tax. One simply goes to the IRS web site, does a search for “AMT Assistant” and starts entering information. The process takes between five and 10 minutes if you have your financial number handy. If you don’t, add however much time it takes you to get your records together.

Now, you might be a little nervous about entering financial information on the IRS site. What if they are tracking you? Don’t worry. It is anonymous. The information can’t be tracked back to you unless the IRS wanted to hunt IP numbers through hosting companies and computer systems. Given it takes 30 minutes just to get an IRS representative on the phone, it is highly unlikely this will occur.

When you’ve got your courage up to full tilt, give it a try. Maybe, just maybe, you’ll find you aren’t subject to the alternative minimum tax.

In late 1981, the yield on 1-year treasury bills reached 17% and the yield on 10-year treasury bonds reached 15% – both yields proved to be the highest ever recorded in US history, and marked the beginning of a decline in market interest rates that lasted almost 3 decades. By 2009, 1-year and 10-year treasury yields bottomed at 0.3% and 2.5%, respectively. By any measure, the past 28 years represent the greatest bull market in history for fixed income securities. The magnitude of the decline in interest rates that commenced in 1982 and ended in 2009 may never be repeated in the lifetimes of anyone reading this article.As we sit here, in early 2010, with bond yields near the lowest levels possible, it begs the question of whether or not the next 10-20 years could witness the worst bear market in bonds we’ve seen in decades…perhaps an environment reminiscent of the 1970?s. Everyone knows that rates are eventually heading higher, perhaps much higher, and interest rate risk for fixed income portfolios is equally high. Similar to an earthquake forecast in California – it’s not a question of if, it’s merely of a question of when? And much like a resident of California, any investor who owns fixed income securities needs to be aware of the attendant risk. Fixed income investors need to be mindful of the strategies that may be employed to protect a portfolio against the threat of rising interest rates.The basic goal for most bond investors in any market environment is to construct a portfolio that satisfies certain characteristics of yield and liquidity, while having no more risk than is necessary. While there are many ways to evaluate the interest rate risk in any particular fixed income portfolio, the single most important metric that all investors must understand is duration. Although there are many different ways to measure duration, in its simplest form duration is a single number that measures time, in years, and represents the weighted-average time of receipt of all cash flows from a particular fixed income security. A long-term bond will have a higher duration than a short-term bond, and will therefore be more sensitive to changes in interest rates and have greater interest rate risk. The duration of a portfolio of bonds is simply the weighted-average duration of all its constituent holdings.There are 4 general factors and related fixed income strategies that portfolio managers and individual investors can control to reduce the duration, and hence interest rate risk, of a bond portfolio:1. Maturity: stated maturity of the bond2. Coupon rate: premium or discount to market rates3. Coupon type: fixed rate or floating rate4. Embedded optionalityMaturity: Most investors control duration through a simple concept know as laddering. Laddering is nothing more than building a portfolio of fixed income securities with varying maturity out to some maximum point in the future, such as 10 years. For example, a $1 million laddered bond portfolio may have $100,000 worth of bonds maturing each year for the next 10 years. After one year has passed and the nearest bond has matured, the proceeds are used to repurchase a new 10-year bond, such that the overall portfolio always has 10 bonds with maturities spanning from 1 to 10 years. Assuming average credit quality and coupon rates, such a portfolio might likely have a mathematical duration of 4 years or so. Laddering isn’t a fixed income strategy, per se, but is actually a portfolio management technique: investors with laddered bond portfolios buy bonds of all maturities, from short-term to long-term, and simply accept market yields that are available at any given point in time. Nonetheless, the composite Read the rest of this entry »