Question

Your retirement savings includes one tax-exempt account and one taxable account. You would like to follow a passive investment strategy and hold a portfolio that includes two asset classes. The first asset class is non-dividend-paying growth stocks and the second asset class is BBB-rated corporate bonds. Would your tax-deferred and taxable accounts include the same proportions of the two asset classes? Why or why not.

Answer 1

What are Bonds?

Bonds are one of the oldest (second only gold) courses and major asset classes. By the end of 2017, the global bond market reached nearly $ 110 trillion, according to JPMorgan Asset Management.

Most of these bonds are tax rates invested (usually sold for $ 1,000 or more) when companies or governments borrow from investors over a set period of time, with the promise of a future principal.

During the bond period, investors receive fixed interest payments (called coupon payments) that are paid on a monthly or quarterly basis as an annual basis.

As long as the bond issuance business repurchases and generates each interest payment, the bond investor receives the remaining, estimated amount of the return.

There are many types of bonds you can invest in:

U.S. Treasury (They range from three months to 30 years in length)
Foreign government bonds (including government bonds in emerging markets)
Business investment grade
Non-cash bond company bonds (junk bonds)
Municipal bonds (issued by American states or municipalities).
Floating rate brackets (interest rate periodically refunded)
Conversions convertible (convert into stock)
Bonds refunded

Some of the most important metrics for investors to know about:

Par value: initial bond value (for most $ 1,000 companies, but government bonds can be $ 10,000 or more)
Maturity Date: when the bond pays its interest rate
Coupon value: interest payments received as a percentage of the par value
Offer at maturity: the expected value of the bond repayment based on its current value assumed to hold until its maturity date and is not called
Bond rate: estimates the potential risk of a bond issue

Note that bonds, like stocks, trade in markets and thus their prices fluctuate above or below the exchange rate depending on supply and demand.

A bond sold at a fixed par value when you buy it increases your effective yield (e.g. your yield is higher than the initial bonus rate), while bond trading at a discounted rate decreases your effective yield.

While your broker can help you invest in individual bonds, it's usually the easiest way to invest in these fixed assets through a convertible securities fund or an exchange stock such as: Vanguard Intermediate-Bond Fund (BIV), Vanguard Total International Bond Fund (BNDX), or Vanguard Long-term Bond Index Fund (VBLTX).

What are Shares of Dividend?

Dividend stocks are companies that pay dividends or distributions to shareholders of a business. Taxpayers are paid on the benefit of the company, after it has made interest payments on any remaining debt and repossessed the business.

Dividend stocks may be classified as entities or as passive entities (REITs, MLPs, BDCs, LPs), which have several important consequences, especially when it comes to taxes. You can read many detailed reports on how to invest in all these different types of shares and their respective tax advisors here.

In short, investing in a dividend stock means that you take ownership of the company for its purpose to maximize its cash-generating assets and consequently cash flow over time. By the way, dividend stocks often increase their returns to investors, which results in an increase in earnings and often increases interest rates over the long term to generate net profits.

Investing in stock exchanges is usually easier than bonds, since you can buy them with the addition of one share per your broker (some retailers like Robinhood offer unlimited free trade deals).

Most Important Differences Between Dividend Stocks and Bonds

Would your tax-deferred and taxable accounts include the same proportions of the two asset classes? Why or why not.

There is no 100% appropriate way to build a retirement portfolio that works for everyone. Both bonds and securities are classes of income-generating assets that have their own strengths and weaknesses.

So the complete mix of bonds and stock split of your retirement portfolio will depend on many personal factors including: retirement savings size, your retirement age, health, lifestyle, and personal risk tolerance.

While long-term capital accumulation has proven to be one of the best asset classes to generate rising revenue and save wealth, a portfolio of high growth negative profit margins is not good for everyone.

In addition to their weak view of long-term returns, bonds can add sensitive ballast to a retirement portfolio by reducing depreciation. That is a good return on investment when it is a factor that helps the investor to continue the game rather than selling everything and fleeing the hills.