Your Questions About Stocks And Bonds

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Joseph asks…

Why have stocks and bonds moved in the same direction recently?

The commentary I’ve read says that stocks have a bad day when investors are afraid that interest rates will go up. But rising interest rates make bonds go down too! Is the historical advice–stocks and bonds move in opposite directions–no longer valid? Or is this just a temporary anomaly?

financi4 answers:

Bond returns and stock returns can move together or in other directions. The reasons are different.

For example, if there is a shift in demand, it could be good for one asset and bad for the other. In late 1987, there was a “flight to quality” where people sold off their equity positions and bought bonds. This caused stock prices to fall and bond prices to rise. There have been other times where demand for bonds fell and demand for stocks rose — causing the opposite effect.

But suppose that there is no shift in demand between the two asset classes. Then if yields increase, the present values of a bond’s future cash flows will decrease causing people to lose money in the bond market. But if rates go up, then the expected return of stocks also rises. If there is no corresponding increase in the expected cash flows of stocks, their value would also have to fall.

Over the long run, returns on bonds tend to be positively correlated. The beta on investment grade corporate bonds, for example, is usually between 0.10 and 0.35.

Here is another reason why corporate bonds should be positively related to stock price. Suppose a company is debt. If the company’s stock goes up — then the company is worth more. If it is worth more, the debt becomes safer. If the debt becomes safer, it increases in value.

Thomas asks…

Any tips on finding out if my Dad has bonds,stocks,insurance?

Hey guys I need some help and suggestions. My Dad passed away I know he has bonds and insurance somewhere. Anyone have any tips on what I should do?

financi4 answers:

Consult the executor of his estate.

Steven asks…

What kind of stocks and bonds and other investments do millionaires invest in?

someone like Derek Jeter or Albert Pujols who probably dont know very much about investments but have large incomes, what do they invest in? fixed income low risk bonds and annuities? priviately owned business or common stocks?

financi4 answers:

Mutual funds are often the recommended investment for new or inexperienced investors. Through mutual funds, you can simultaneously invest in many sectors and companies without having large sums of money.This capacity to invest money in several sectors is referred to as diversification. This reduces an investor’s risk when shelling out money. In reality, any form of investment has its own set of risks involved, but risks are usually much higher if an investor buys just one stock. Say a company goes bankrupt or performs poorly. Some or all of your investments will be lost.

Michael asks…

What are some great bonds or stocks to invest in right now that i will get rich later on before retirement?

I wanna be sort of rich. So are there any stocks, or bonds, or anything that I can buy and invest in NOW, to watch my money grow over the years?

financi4 answers:

The bond bubble is already bursting… Both Federal, state and municipal, so stay out of that.
The stock market is still in deep trouble. Between the derivatives and high-frequency trading, the stock market is mostly fiction. It will take a long time for the derivatives to shake out.

For right now, consider buying physical silver and gold and storing it yourself. Gold is expected to hit $2500 by the end of this year, and silver should easily accomplish $75 by end of year. Why is it going up? It isn’t… The value of the money is going down that fast. The Federal Reserve has announced another round of “quantitative easing” in the works, which just means they are printing lots and lots of money and then buying the US treasury bills that China quit buying. They are destroying the currency.

Paul asks…

Are transactions of stocks, bonds, and securities included in the GDP?

GDP=Gross Domestic Product…

financi4 answers:

No transaction volumes are not included in GDP. GDP is a measurement of what is produced and does a relatively poor job of dealing with service activities in general, and would never include market transactions.

Charles asks…

How good do you have to be in stocks and bonds as a Finance Major?

I am fond of capital investment and making investment decisions. But I am not good in stocks and bonds. I kind of struggle in those, especially the concepts of it.

financi4 answers:

Sorry Champ, stocks and bonds are as basic as it gets in the world of finance.

Donald asks…

How much was invested in stocks and how much was invested in bonds?

You invested $11000 in stocks and bonds, paying 5% and 8% annual interest, respectively. If the total interest earned for the year was $720, how much was invested in stocks and how much was invested in bonds?

financi4 answers:

$5333.50 in stocks —- $5666.50 in bonds…. Close enough?…

David asks…

What are the differences between stocks and bonds?

Can someone please give me a few points about what stocks and bonds are and how they differ from each other?

financi4 answers:

A stock is a (very, very) small piece of ownership in a company. It will go up and down based on if the company is perceived to be worth more or less money.

A bond on the other hand is like a small loan you make to a company – they will pay you back what they lent you and interest. There’s no question about how much money you will be getting back because it’s determined up front.

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