My Personal Finance Blog

The best bond fund for 2011 and beyond might be labeled as an INCOME fund, and finding this fund can be compared to a balancing act on a high wire. Lean toward the safest bond funds and you earn 1% a year in interest income. Lean the other way and make 7% or more without a safety net. Let’s sort these and other income funds out in search of the best.

For most people, neither of the two examples above will likely be the best bond fund for 2011 or in the near future. The first is a short-term fund that invests in the world’s safest income securities, U.S. Treasuries that mature in about 3 years. That’s why it only yields or pays 1% a year in interest income in the form of dividends, for a dividend yield of 1%. Our second example is a high-yield income fund that invests your money in bonds of lower quality with higher credit risk. The risk here is that some of the “junk” bonds in the portfolio could default on interest payments and/or even principal. That’s why it yields 7% or more, because it’s risky. Some of the securities held might not pay interest as promised, and some could become worthless.

There are two basic ways to earn higher interest income in bond funds. Accept lower quality in the bond portfolio or buy funds that hold securities with longer-term maturities. Both increase your risk. Long-term income funds have higher interest rate risk, and lower quality funds have a higher risk of default. On the other hand, the safest bond funds with little risk of default and short-term average maturities (of like 3 years) are hardly worth buying if they only pay 1%. Welcome to the balancing act in bond investing today.

When looking for the best bond fund in terms of risk vs. reward, remember that TOTAL RETURN is what really matters: interest income (dividends) plus the change in value of fund shares equals total return. If you earn 7% in dividends and your fund shares drop 20% in the same year, you’ve lost money. So, you’ll need to balance bond quality with a number called AVERAGE MATURITY (explained shortly) to limit your risk and still get a good return. The real risk in bond investing today focuses on the interest rate risk associated with longer-term bonds and funds that invest in them, so let’s take a look.

You can get a yield of over 3% today in a long-term fund that holds bonds of the highest quality. Average maturity of the fund is 25 YEARS, which means that it holds bonds (with fixed interest rates) that are long-term in nature that on average mature in 25 years. Interest rate risk is high. If interest rates go up the value of the bonds held in the portfolio will fall significantly in the bond market, because the interest income they pay becomes less attractive to investors compared to the new higher rates. And the rates are fixed, on average, for 25 years.

Hence, investors in a long-term bond or income fund will have a negative total return (lose money) when interest rates go up significantly. Now, you can increase your yield to 5% in a long-term fund today if you downgrade from highest quality to medium-to-high quality bonds in the portfolio. But this isn’t the best bond fund for most people because interest rate risk is still high. So, let’s play the balancing act by focusing on bond funds with shorter average maturities and relatively high (but not the highest) bond quality.

Intermediate-term income funds have average maturities of 5 to 10 years, which greatly reduces interest rate risk. If you want the highest quality in your bond portfolio (Treasury securities) you can get a 2% yield. Settle for a high quality corporate bond fund with an average maturity of about 7 years and you can get 3% to 4%. In my opinion, that’s the best bond fund for 2011 and beyond for most people. The problem is that no investment salesperson can sell you such a fund. I’ll explain.

When you buy an income fund from a registered representative (financial planner, stock broker, etc.) there will likely be a sales charge or commission up front of about 3% and/or yearly expenses of 1% or more. If you pay 3% up front you’ve just given up your first year’s interest income. Then you give back 1% or more a year in the form of yearly expenses, which reduces your return. But if you know where to look, you can cut the cost of investing and increase your total return by investing on your own with one of the largest fund companies in America.

Vanguard and Fidelity are the two largest fund companies and both offer NO-Load funds with no sales charges or commissions. Yearly expenses for some funds offered amount to less than ¼% or .25%. Look for a TOTAL EXPENSE RATIO of about.25% for an intermediate-term high quality bond fund with an average maturity of about 7 years. That’s your best bond fund for 2011 and beyond, and the best deal you will find for your money in this author’s opinion.

Did you notice that S&P has threatened to downgrade our credit rating on the international scene. If that does happen and the dollar drops, there’s an inevitable conclusion. Suddenly everything we import is going to be that much more expensive. Our recovery from the recession has been slow enough. If everything imported goes up in price, families will not be able to cope. Worse, if the world thinks the US might default on its debt, the country will have to pay more interest on the money it borrows. That will force the banks to raise the interest rates for us. Mortgages and loans will go up. Of course, this is all a horror story and it will never happen because the Democrats and Republicans will agree on how to cut the deficit. . .

Meanwhile that leaves us struggling to make ends meet and trying to find every possible dollar of saving there is to be found. When it comes to insurance, there’s an interesting balancing act going on. The number of people driving uninsured has been rising steadily. In some states, it’s as high as 20% of drivers on the road. Mainly this is forced by the high rates although some ignore the law anyway. The irony of this is the more drivers without insurance, the more the rest of us have to pay. That’s either directly as premiums or indirectly because we take out additional cover against uninsured or underinsured drivers crashing into us. All this is putting the profits of the insurers under pressure. If they keep increasing the premiums, this is a vicious cycle and more people stop buying. So the insurers are now playing games with us. They increase the premiums and then offer us discounts or bonuses. The idea is to keep as many people as possible paying about the same total.

So you have to play the game and shop around to find all the discounts and then check out whether you qualify. Let’s see how it works. Any driver passing into their 50s is one of the safest on the road – statistics never lie. So insurers could lower the premiums automatically, or offer a loyalty bonus if you renew, or offer discounts. Most offer discounts to “mature” drivers. To qualify you usually have to go through a defensive driving course. The AARP’s website has a locator tool telling you where the nearest course is being run. This can give you up to 10% saving. At the other end of the scale, young and inexperienced drivers also qualify for a discount if they go on a safety course approved by their insurer. To qualify, ask your insurer which courses are accepted in your area.

So when you get the first round of car insurance quotes, check which discounts you have. Then run the search again changing, say, the amount of the deductible. Each time you run the search, change a variable so you can work out what discounts are available and how much they are worth. It costs nothing to run the search. If you have more time, telephone the insurer offering what looks the best car insurance quote and ask about what additional discounts are available. The rule is, if you never ask, you cannot receive. Find out how you qualify to save money.

There’s a strange contradiction about insurance. It’s an annoying burden every month when the time to pay the premium comes around but, if the worst should happen, it’s a wonderful thing to have had that insurance policy in place. With the family budgets really tight as the recession shows little sign of going away, the monthly bank statement shows the insurance instalments disappearing. You look at your own health. That’s great. You have never had a day of serious illness in your life. It’s the same for your partner. You cannot avoid feeling a little resentful. All those dollars, every month. And then there’s an accident or one of you does unexpectedly fall ill. It’s then you discover whether that plan you have been paying into is actually worth the money.

The market for health plans is divided in a slightly complicated way. It’s really to ensure the insurance companies make a profit as the cost of treatment keeps on rising way faster than inflation. So it reflects a balancing act between allowing the patients some say, and denying them any real control, over access to treatment. The plan most popular with the insurance industry is Managed Care. This requires you to get the insurer’s permission before you attempt to access treatment. The first contact doctor must be from an approved list, and he or she must refer you on for further diagnostic tests or treatment. Failure to get this referral usually means the insurer will refuse to pay. The second option is a Fee For Service Plan where you pay a lump sum at the beginning of each year, followed by monthly instalments. This covers you for the medical services listed in your policy. Basic plans only cover consults with your doctor and a simple set of tests. More expensive plans have a better range of coverage but there are usually co-payments.

Health Maintenance Organizations (HMOs) are networks of healthcare professions. If you stay within the network, your medical needs are covered although, in most plans, co-payments will be required. The next step up is a Point of Service Plan (POS). This is a variation on the HMO and allows a networked doctor to refer you to an outside expert. Finally, there are Preferred Provider Organizations (PPOs) which offer more choice than an HMO or POS both in the doctors you can access and the treatments you can have, e.g. usually include preventative medicine.

Because the service offered by this site is free, you can get as many health insurance quotes as you like for each of the main types of plan. This gives you more information on which to make your decision. But it’s fair to say the decision is not an easy one unless you read the detail of each plan with some care. With all the health insurance quotes available, you are often forced to balance coverage against cost, i.e. you buy the amount of coverage you can afford. This makes the choices something of a gamble. Do you pick emergency care in the event of an accident or focus on a list of the most common diseases or disorders? Do you include long-term care against the possibility you might be more permanently disabled by whatever happens? There is no right or wrong answer to these questions. In the end, it all comes down to what you can afford and what helps you to sleep best at night.

Choosing the right Valentine’s Day Gift for her can seem like a laborious and mind-boggling process.  The goal in finding the right gift is one that has a perfect fusion of appealing to her unique qualities and illustrating your affection.  It’s a tough balancing act, though an imperative one.

When buying the precise Valentine’s Day gift for the special lady in your life, here are a few things to keep in mind:

1) What are her interests?

Common sense it seems like?  You don’t want to buy her a golfer’s gift if she absolutely hates golfing or a business gift if she’s not working, right?  After all, when purchasing a gift for a girlfriend, wife or other special someone, you want to ensure she actually likes it.  This is extremely important.

2) How long will the gift last?

When it comes to Valentine’s Day, this is a topic not many people think of.  Though many women love to receive the traditional flowers and chocolates, having a timeless gift (one that can last for many years) is much more significant than flowers, chocolates, or other time-sensitive goodies.  Don’t get me wrong, flowers and chocolate are important Valentines components, but over time, such gifts have become less and less memorable.  On the other hand, gifts like a jewelry box, tealight candle holder, or a purse mirror are ideal timeless gifts that can not only signify Valentine’s Day, but gifts that she can use day to day.

3) How should I deliver the gift?

Before thinking about the right Valentine’s Day gift delivery presentation, you must make sure that her special gift comes before or on Valentine’s Day.  Unfortunately, what good would a Valentine’s Day gift serve if your special lady receives it once it’s too late?  Sure, she may still appreciate the gesture and the gift, but you’ve already lost half of the battle of when you really think about.  Additionally, the actual delivery of a gift is just as important as the gift delivery timing, as well as the gift itself.  The key details, such as specific wrapping and location, are important elements to a perfect Valentine’s Day gift delivery.

Giving a gift is like giving a gift from the heart — not all of us have the same hearts, so why not give a personalized gift that signifies yours and her unique heart?  To all the men out there: sons, boyfriends, husbands, uncles, grandfathers, and dads — go and get a head start and make your special lady smile on Valentine’s Day.  Just like Santa said for Christmas, “make a list, and check it twice!”