High Interest Rate

Financial instruments found in the debt market include:

1. Term Deposits

2. Government bonds

3. Treasury Bills (T-Bills)

4. Money Market Funds

5. Corporate Bonds and Debentures

6. Domestic Bond Funds.

In this article, we will only discuss the term deposits, government bonds, treasury bills and money market fund.

1. Term DepositsTerm Deposits are qualifying instruments for tax shelter and will share the following characteristics.

a) Short-Term Deposit: less than 1 year

b) Long-Term Deposit: to 5 years.

Interest Rate: depends on length of deposit and competitive interest rates available in the marketplace.Long-term investments are called Guaranteed Investment Certificates (GICs) and can be purchased for a lesser amount such as $500. They are also called a Certificate of Deposit (CD). Rates may vary as little as 0.10% amongst the deposit takers.Term Deposits may be cashed prior to maturity, but this may incur a penalty. GICs generally cannot be cashed before they mature, although some deposit takers are now more flexible.

2. Government saving bonds

Country residency is required and guaranteed by the country of issuer.

a) Are registered bonds that provide protection against loss, theft or destruction.

b) Are not transferable.

c) Can be purchased for a minimum of $100 to a maximum of $500,000.

d) The interest is taxable and is competitive with GICs.

e) Mature in 10 to 12 years.

In Canada, Canadian saving bonds are issued as either R bonds or C bonds.

In US, US saving bonds are issued as series EE bonds, Series I BondsThe investment risk for government savings bonds Issued by Canadian government or US government is nil, since the bond is guaranteed by the federal government.

3) Treasury bills (T bill)Treasury bills are a short term money market instrument and issued by the federal government in terms of 30, 60, 91, 182 and 364 days. They are sold by auction.Banks and investment houses buy at wholesale in multiples of $5 million denominations. They then sell these T-Bills to brokers and investment dealers who break down their purchases into $1,000 lots.

T bills are sold discount to their face values and also sold on the secondary market and their value fluctuates depending on competitive interest rates at the times of resell.The short-term nature of T-Bills does not cause a large exposure to interest rate risk, but to some extent there is an inflation risk.If a T-Bill is sold before maturity, any gain is taxed as interest.

4. Money market fundsMoney market fund holds T bills and other short term money market contracts. Investors pool the investments through the mutual fund. Units in this fund can be bought and sold daily. Money market funds produce capital gains although their primary function is to generate interest income. Interest is generally paid monthly, while capital gains are paid annually.The benefits of money market funds include

a) Security of principal

b) Liquidity.

c) Eligible for plan registration

I hope this information will help. If you need more information, you can read the complete series of the above subject at my home page:

Kyle J. Norton

http://lifeanddisabitityinsuranceunderwriter.blogspot.com

http://financialinvesting12.blogspot.com/

All rights reserved. Any reproducing of this article must have all the links intact.

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Although the vast majority of collectible or even antique stock certificates can be purchased for under $100, there are a few stock certificates which are worth mentioning for their collectible value. Each stock certificate is unique, making them difficult to value and even more difficult to rank in terms of desirability. Still, there are a few that stand out as the collector’s holy grail of stock certificates:

The earliest known stock certificates date to the second half of the eighteenth century. Nobody knows for sure when the first stock certificate was issued, although there are several in existence from as early as 1783. These very old stock certificates were generally issued in very low quantities and it is rare for more than a handful to survive over the centuries, making them some of the most sought-after stock certificates to add to a collection.

Another category of sought-after stock certificates is those certificates with famous signatures. Prized by autograph collectors and stock certificate collectors alike, they offer tangible proof that the certificate you own was actually touched by the owner of the company. Although today’s stock certificates have pre-printed signatures of company executives, those until at least the beginning of the twentieth century usually included real signatures. Because these companies were usually owned by the rich and famous, stock certificates have been found with the signatures of Cornelius Vanderbilt, John D. Rockefeller, George P. Pullman, J.P. Morgan, Jean-Paul Getty, Henry Ford, and many others whose names remain recognizable today. These are among the rarest of all stock certificates, and can command a hefty sum when sold at auction. These certificates, if signed by a well-known business mogul, nearly always command $1,000 or more.

Another unique category of valuable stock certificates is those with a particularly interesting denomination. Though the earliest certificates had a hand-printed denomination, later certificates came pre-printed with the number of shares to expedite the process of selling stock shares. Most are marked with an even number, the most common of which is 100 shares. Those for less than 100 shares often included a counter in the margin, which would be punched to indicate the correct number of shares. Oddball denominations were printed occasionally; only a handful of 1,000-, 5000-, or 10,000-share certificates are known to exist. In the 1970′s, the Union Pacific Corporation printed certificates for up to one million shares, which would be a unique addition to any stock certificate collection.

Because stock certificates were usually kept in safe deposit boxes, desk drawers, or other hiding places, new finds are constantly coming on the market, making the discovery of rare antique stock certificates possible even today. For example, one signed by former president George Bush’s great grandfather, Samuel Prescott Bush, has recently been discovered. Although most can be purchased for just a few dollars, there are some that can fetch many times this amount, such as an antique Standard Oil Company certificate signed by John D. Rockefeller, which just set a world record for collectible stock certificates when it sold for the amazing sum of $134,400.

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When President Obama was in Wall Street, New York making a keynote speech on the need for regulations in the money market. Obama made major comments on the way business was done on Wall Street to the dismay of some key stake holders. Actually, many have come out strongly in opposition to his proposed government regulation in the economic sector.

But I believe what Obama said was very important if we are to avert what happened after the collapse of the Lehman Brothers last year in September. While regulations cannot stop a recession from happening again, I believe they will reduce the risk factors.

Some of the things highlighted in the Presidents speech, were the abnormal salaries paid to the executives while at the same time enjoying tax cuts. Also, high risk investments by bank ventures and lending too much with very little interest rates that cannot be self sustaining have negatively exposed the economy.

The President also commented on how firms and companies have gone into borrowing high amounts of money without sound asset base to act as collateral hence exposing investors money unfairly. These are the reasons why the economy is in such a dire state coupled with the high government expenditure in fighting terrorism in Iraq and Afghanistan.

Government measures should include reducing executives pay cheques, while at the same time equalizing taxation. This will demonstrate fairness and at the same time allowing everyone to bare the burden of taxation equally.

Banks and major corporations must be forced to change and embrace sound management practices and hence avoid high risk lending, borrowing and investment. This will help the economy to stabilize and more importantly we need to move from a credit based economy to a saving based economy (where cash is king, not credit). I believe President Obama is right on this one.

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Equity-Linked Certificates of Deposit are a safer, low-cost alternative for those who must have an Equity-Indexed Annuity type of investment. These little-known investments allow you to participate in the growth of the market index while your principal is guaranteed by the Government. Read on to find out more.

Equity-Indexed Annuities are probably the most heavily promoted investment for seniors in today’s marketplace. The sales pitch is appealing and the payoff to the agent is very big–up to 13%. The enormous commissions have led to sales abuses which leave seniors holding the bag.

Readers of this column have wised up to the flaws of Equity-Indexed Annuities. But what are the alternatives?

The best alternative to Equity-Indexed Annuities is to use a diversified mix of investments and strategies that can provide an income stream between 6% and 10% while limiting any risk of significant loss. That’s what I do for my clients–without long-term time commitments or surrender penalties if they want access to their money.

Another alternative is called an Equity-Linked Certificate of Deposit. They provide virtually all the benefits that Equity-Indexed Annuities are designed to provide, without all the negative strings attached.

Equity-Linked Certificates of Deposit are offered by banks. They pay a return that is based on a stock market index, usually the S&P 500. Just like all Certificates of Deposit, they are federally insured by the FDIC up to $100,000 per individual. The minimum purchase for an Equity-Linked Certificate of Deposit is usually $25,000, but some can be found with $1000 minimums.

The return is based on the average performance of the S&P 500 over a set period of time. Just like Equity-Indexed Annuities, how the return is calculated depends on the issuer. The returns are all based on averaging the gains or losses of the index at set points over the life of your contract. Some Equity-Linked Certificates of Deposit guarantee a 3% return. Those doing so will limit the index return. Others provide 100% of the calculated index return.

The only way you can lose your principal with an Equity-Linked Certificate of Deposit is if you pull your money out before the end of the term. Most will have some form of a penalty, but since there wasn’t a big commission paid to an agent to sell it, the redemption penalties should be small. (Some don’t allow early redemption so investigate before you invest.) All allow early redemption without penalty if the account holder dies.

One of the major benefits Equity-Linked Certificates of Deposit have over Equity-Indexed Annuities is a short term commitment, FDIC insurance of principal, and much lower fees. They allows you much more control and flexibility.

For instance, let’s say you intend to invest $75,000 in Equity-Linked Certificates of Deposit. Instead of putting all the money in a single CD, divide that money between three–purchasing one each year for three years. Then as one comes due you can roll it into another 3-year term. This will reduce the negative effects in how the index returns are calculated while giving you access to $25,000 every year.

There are several disadvantages to Equity-Linked CDs. They don’t normally pay interest until maturity, so these investments are not a good choice of those looking for steady income. And like Equity-Indexed Annuities, you don’t really get 100% of the market gains because of the averaging used in calculating the rate of return.

You may be wondering why you haven’t heard of Equity-Linked Certificates of Deposit before. In fact, you should wonder why the advisor recommending you buy an Equity-Indexed Annuity hasn’t recommended them! The reason is they don’t pay a large commission so there isn’t a financial incentive for the advisor to do so.

Check with your local bank to see if they offer Equity-Linked CDs. Not all do, but they are becoming more widespread. Any broker or advisor that can sell bonds should also have access to Equity-Linked CDs.

I still believe there are better ways to invest your money than Equity-Linked CDs. But I’d much rather see someone invest in them than an Equity-Indexed Annuity. Don’t let advisors who stand to gain so much from your money pressure you into investing in an Equity-Indexed Annuity when an Equity-Linked CD is a much better alternative.

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Did you know that you can invest in real estate through your self-directed IRA? Because of the security offered in this type of investment, you can actually use IRA money without penalty and in some cases without double taxation

Your Retirement Fund can grow quicker with higher returns. If you are looking for some diversification in your investments so that some of you money can bring you more than the average without more risk, this might be the way to do it. Always discuss any investment you are thinking about making with your attorney or tax advisor for the details involved.

With a better opportunity that has a low risk, you might even be able to retire earlier than planned. Have you ever thought about that? What if you could knock off a few years from the amount of time you actually have to work? Does regular passive income solve that?

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By the way, you can also invest for retirement and not put the investment in an IRA or any other type of tax-deferred vehicle. You simply invest with after-tax dollars.

Remember, we’re not your attorney or tax advisor. We suggest that you check with them about any investment you’re thinking about making.

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