Wednesday, June 22, 2016

Retirement-The Big Picture

In early May, we attended an “Inside Retirement” conference sponsored by Financial Advisors magazine; the topics were centered on “income and longevity.” Various nationally known speakers discussed pertinent items related to those themes. We found some of the presentations worthy of discussing here.

 Alicia H Munnell (Peter F. Drucker Professor of Management Sciences at Boston College, and director of the Center for Retirement Research at Boston College) gave a presentation with the title of this blog: The Big Picture. She has written extensively on income in retirement. Some of her major points include the following:

  • More than one-half of today’s workers will not be able to maintain their current lifestyle in retirement. Why not?
    • People will live longer.
    • In spite of this increasing life span, people will work only a “little” longer before retiring—thus increasing their retirement life span.
    • Health care costs are increasing. The increasing cost of care will be coupled with increased cost of health insurance—both private insurance through the Affordable Health Care Act and through Medicare Part B increases. In 1980, Part B Medicare premium was 6.8% of the Social Security benefit; in 2030 it is estimated to be 19.4%.
    • Interest rates are at historic lows; lower rates reduce the amount of income generated from personal savings.\
  • Retirement income has historically come from a combination of a) Social Security benefits, b) pension plans (either defined benefit or defined contribution), and c) individual savings. Let’s examine each separately.
    • In 1985, Social Security benefits represented 42% of pre-retirement earnings. After Part B Medicare costs, the proportion decreased to 40%. Benefits were not taxable at that time so there was no further erosion due to income taxes. By 2030, those proportions are estimated to be 36% replacement before Medicare and income taxes; 32% after Part B Medicare expense, and 30% after Medicare and income taxes. Note that these percentages represent current replacement rates and do not include any potential changes to remedy the Medicare shortages currently under discussion.
    • We live in a DC (defined contribution) or 401(k) world. The older DB (defined benefit) or pension plan is fast disappearing.  401(k)s limit the employer obligation only to offer contribution of funds to a retirement plan. The acceptance—and performance—of the plan is shifted to the employee from the employer. Here’s where we stand:
      • Employees who don’t join the plan—21%
      • Employees who contribute less than 6% of their pay—53%
      • Plans with high asset fees—54%
      • Plans losing assets through “leakage” (i.e. cash outs, hardship withdrawals, post 59 ½ penalty free withdrawals, loans, etc.)—25%Note: This leakage impact over the life of the plan can reduce the ending amount at retirement by as much as 25%.
      • Retirees who don’t have a systematic plan for withdrawing assets in retirement—99%  How much (and when) should withdrawals be made from a retirement plan? Too much too soon and the retiree can run out of money; too little too late and IRS required minimum distributions can have significant income tax and Medicare Part B premium impact.
  • Individual savings (or the lack thereof) are a topic for a separate writing; they warrant a much greater discussion which we will examine later.
  • So what should a pre-retiree do?
    • Work longer. A longer working career has the dual advantage of allowing retirement savings to grow and reducing the time during which retirement assets are needed.
    • Save more. Savings should be increased preferably through a systematic plan (such as a 401(k)) or a periodic contribution to a savings account.
    • Consider non-traditional sources of retirement income. There are two primary assets for most employees today: their 401(k), and their home. Tapping the home asset is a complex topic—another one that will be addressed in a separate writing. Home assets should be used only after careful analysis and with a full understanding of all their ramifications.
We at Paragon Financial Advisors strive to assist our clients in formulating a “big picture” for retirement. Please call us and we can discuss your individual circumstances.   Paragon Financial Advisors is a fee-only registered investment advisory company located in College Station, Texas. We offer financial planning and investment management.

Monday, April 18, 2016

"Robo" Retirement??

There is much discussion today about “robo” or “robot” advisors (i.e. advice given by computer based on your input). Just answer a few questions, press a button, and you have the asset allocation you need for investments or you will know if you can retire.  The Saturday/Sunday February 20-21, 2016, Wall Street Journal (p. B11) also published online HERE reported an academic study of retirement calculators that warrant consideration.

Researchers at Texas Tech University and Utah Valley University evaluated 36 of the most prominent retirement planning calculators (both free and low cost). A hypothetical couple earning $50,000 each and in their early to mid-60s were used and their retirement was planned using the calculators. More than two thirds of the retirement calculators said the couple could retire with a significant degree of confidence. That significant degree of confidence was 70% or greater probability that the couple had enough money for retirement. Eleven of the 36 calculators correctly identified that the couple was in a precarious retirement position—those 11 calculators were not specifically identified. The calculators used did include ones from companies such as Fidelity Investments, Vanguard, T. Rowe Price, AARP, the Financial Industry Regulatory Authority (FINRA), and MarketWatch. MoneyGuidePro software was used by the researchers to make their own analysis.

A tradeoff exists between simplicity of input and quality of output. The more questions asked in the input phase (and the quality of those questions), the more rigorous the retirement plan output. For example, what is a reasonable life expectancy for the individual given family history? Will there be any inheritances from parents/relatives? Are there expected Social Security benefits? Will the individual have pension plan income; if so, is there a survivor benefit? A question frequently omitted is the smoking background of the individual (a factor that has significant impact on life expectancy).

In addition, there are numerous assumptions underlying each planning model. Does the model consider inflation? What rate of return is assumed on investment assets? How are those returns predicted (every year on average or by some other methodology)? These are only a few of the many planning assumptions in most retirement models.

Anyone using such a retirement calculator should look for a model that asks pertinent questions for input. Also, the model assumptions should be available for validation. Ideally, multiple calculators should be compared. Retirement is generally not difficult in the first few years; but those later years, when an individual is no longer able to work, can cause the problem.

We, at Paragon Financial Advisors, assist our clients in their retirement planning. That planning should be done well in advance and, as a process, should not be taken lightly. (By the way, we use MoneyGuidePro to assist in our retirement planning.)  Paragon Financial Advisors is a fee-only registered investment advisory company located in College Station, Texas. We offer financial planning and investment management.

Thursday, March 31, 2016

Medicare in 2016

All Social Security recipients are aware there was no cost of living increase in Social Security benefits for 2016. However, some recipients are facing a reduction in their Social Security check. The reason: the Medicare Income Related Monthly Adjustment Amount (IRMAA). The amount individuals pay for their Medicare coverage is a function of their modified adjusted gross income (MAGI) as reported on their tax return to the IRS. Higher income levels mean increased cost for Medicare for the same level of Medicare benefit. If the MAGI plus any tax exempt interest income exceeds $85,000 for an individual or $170,000 for a couple, the cost of Medicare Parts B and D increase. There is an increasing increment paid based on 5 levels of income.

Parts B (Doctors) and D (Drug)

For example, at the highest level, an individual making more than $214,000 ($428,000 for a couple) will pay $389.80 per month instead of the standard $121.80 for Part B benefits. That additional amount is paid by both spouses in the case of a couple receiving Social Security benefits. Those individuals in the highest income bracket would pay an additional $72.90 for their Part D drug benefits. The bottom line: each spouse in a couple receiving Social Security benefits (who are in the maximum tax bracket) will pay an additional $340.90 per month with no increase in benefit.

What to Do?

We will not get into the debate of higher income individuals should have to pay more, even though they have been taxed once on wages subject to the Social Security tax. Our point is that prudent financial management dictates managing one’s affairs to minimize tax payments. To that end, there are some basic things that could be done. By managing MAGI, one can possibly eliminate stepping into a higher Medicare bracket. Type of account (taxable or tax qualified) holding various investments, tax loss harvesting on securities held, and required minimum distributions made directly to a church/qualifying charity from an IRA are some examples of actions available.

We at Paragon Financial Advisors will help our clients evaluate possible courses of action the help reduce Medicare (as well as other tax) costs; however, these actions should be verified with your personal tax preparer or CPA to ensure they are appropriate for your circumstances. Paragon Financial Advisors is a fee-only registered investment advisory company located in College Station, Texas. We offer financial planning and investment management.

Friday, March 18, 2016

Death and Taxes

Two things are inevitable: death and taxes. The occurrence is certain; only the timing is unknown. The tax portion has some implications that may affect future planning. Mr. Obama, in his 2017 budget proposal, included items that would effectively increase the taxes Americans will pay. While these items have not been implemented (yet), it does provide information for guidance in the future. The proposals include the following:

Excess Accumulations

Under Mr. Obama’s proposal, an individual would not be allowed to make tax deferred contributions to an IRA or defined contribution (i.e. 401(k), etc.) plan if the amount in the plan could produce an annual benefit in excess of $210,000. A Treasury Department document explaining the tax proposals in the budget stated “Such accumulations can be…in excess of amounts needed to fund reasonable levels of consumption in retirement…” and thus do not justify tax deferred treatment.

Inherited IRAs

Under current rules, an heir of an IRA can elect to receive distributions from the IRA over the lifetime of that heir, effectively “stretching” the distributions from the IRA over many years. This stretching allows the IRA to continue earning tax deferred for (potentially) many years and limiting tax payments to only taxes required on the amount withdrawn. The White House proposal would require an IRA inherited by anyone other than the surviving spouse to withdraw all proceeds from the IRA over a maximum of 5 years (and pay taxes on the withdrawals, of course).

Mandatory Roth IRA Distributions

Roth IRA contributions are made with after tax dollars; earnings accumulate tax free and there is no required minimum distribution under current rules. Two changes are proposed here: 1) minimum distributions beginning at age 70 ½ would be required (just as with regular IRAs), and 2) no additional contributions would be allowed after age 70 ½.

“Back Door” Roth IRA Contributions

Currently, Roth IRA contributions are not allowed for individuals making more than $132,000 annually for singles ($194,000 for couples) in 2016. However, individuals can open a regular IRA with non-deductible contributions and immediately roll the funds into a Roth IRA. That process effectively allows high income individuals to contribute to a Roth IRA regardless of the income level. The budget proposal effectively prohibits this practice in the future.

Net Unrealized Appreciation on Employer Stock

Retiring employees currently have the option of taking employer stock from a company plan at retirement. Their tax liability (as ordinary income) is based on the original cost of the stock to the employer plan. If the stock is held for a year or longer, the excess of the sale price above the plan cost (the net unrealized appreciation) is taxed at the more favorable long term capital gains rate. The budget proposal eliminates that option for employees under age 50 as of 12-31-16.

Other Items

While not included in the budget plan, there have been other tax measures discussed which affect investors. One is a “transfer fee” on securities transactions i.e. a tax on each security purchase and sale. I imagine the rhetoric will be couched in terms of affecting the only the wealthy and “hedge fund managers,” however; such a tax would also affect mutual funds. Those funds are the investment vehicle of most middle class investors and are the bulk of investments for 401(k), 403(b), etc. plans. It thus appears that such a tax would have a much wider impact on more Americans.

Income taxes have long been a favorite vehicle for raising revenue. Another item has been discussed—a wealth tax. Such a tax would be applied to the assets the investor owns. The amount and the frequency of collection (annually??) have yet to be determined. It will be interesting to see if such a proposal again appears.

In this political climate of “fair share” and “income inequality,” one can anticipate some tax changes will be forthcoming. We, at Paragon Financial Advisors, assist our clients in managing their financial assets in a changing tax world.  Specific actions should be discussed with your CPA to ensure appropriateness in your individual circumstances, but let’s try to delay both death and taxes. Paragon Financial Advisors is a fee-only registered investment advisory company located in College Station, Texas. We offer financial planning and investment management.

Tuesday, February 16, 2016

Happy New Year-2016(II)

On January 4, 2016, we wrote a blog about the volatility and performance of the financial markets in 2015. To say the financial markets have been “interesting” since then exemplifies an understatement. As we write this on Feb 11, 2016, the S&P 500 has declined approximately 10% since the end of 2015 and has fallen approximately 13% from its high in May of 2015. No way can one look at an investment portfolio in these market conditions and “be happy!” However, we should try to look at these conditions in light of 1) how to protect (to some extent) against such market moves, and 2) what to do now.
What’s the Perspective?
Fresh in most investor’s memory is the October, 2007- March, 2009 decline. The S&P 500 declined from about 1565 in October, 2007 to 676 in March, 2009 (a decline of about 57%!!). The S&P regained its October, 2007 high in March, 2013 (or 4 years later) on its way to 2131 in May of 2015. Obviously only one incident may not be representative of future market movements; however, the stock market historically moves up, even with the intermediate ups and downs.
How Should You Prepare?
So what does an investor do? With perfect hindsight, one would have moved into cash to avoid the downturn. Such market timing always brings the question of “when” to reinvest. Numerous empirical studies show investors suffer anemic returns because they wait too long to re-enter the market. For example, Putnam Investments published research showing that an investor who missed the best 10 days in the market during the time period 12/31/2000 -12/31/2015 would have an annualized return of 1.18% vs. the 5.80% earned by the investor who held the portfolio throughout the time period. That return differential represents $11,365 more on an initial investment of $10,000 ($23,295 vs. $11,930).
Numerous factors go into portfolio management; we will discuss only one here—asset allocation. Asset allocation involves having a portfolio positioned in such a manner that “not all eggs are in the same basket.” Some ramifications of that are as follows:
  1. Money needed in the near term is invested in cash or conservative bonds such that those needed moneys are not subject to the volatility of the stock market.
  2. Different investments in the portfolio can move in different directions relative to each other and the market in general (their correlation). We mentioned the S&P is down about 10% year to date; the aggregate bond index is up approximately 2% in the same time period.
  3. A subset of the correlation argument is use of alternative assets where the investment itself or the investment manager’s style is designed to give some portfolio protection in a declining stock market. Mutual funds utilizing a “long/short” or “market neutral” strategy are available to provide some loss protection and still maintain liquidity. Obviously the quality of that investment is highly dependent on the fund manager and fund strategy; care should be taken when integrating such assets into a portfolio.
What Do You Do Now?

Preparation is great, but it’s an historical thing. If it’s not done before now, you may be too late. So what does an investor do now? Consider the following:

  1. Review the cash needs from the portfolio for the next several years. Do you have sufficient cash or investments with gains to cover those needs? If so, you can “wait it out.” You have no need to go into panic portfolio liquidation.
  2. Almost every diversified portfolio will have some assets with a gain—especially if they have been in the portfolio for a while. Do some “tax harvesting” where assets are sold and the gains of the “winners” are offset by losses of the “losers.” This action results in avoiding taxation on the gain and allows resetting cost basis on investments in the future.
  3. What did you do the day after Thanksgiving? Millions of Americans went shopping because things were “on sale.” Apply the same mindset to the stock market. Stocks are currently going “on sale.” Investors may have hard time thinking about adding to positions in such markets, but for the right stocks and in the right portfolios, these times may be buying opportunities.
Let’s Review
We are not saying “do nothing.” We are saying that an investor should review his/her current portfolio in view of the investor’s needs/long term goals and should consider the composition of the portfolio. Wholesale selling in a down market usually works to the investor’s disadvantage. In addition, tax consequences of selling at a loss can be tricky and should be done with tax consultation. Also, buying declining securities of companies should be considered carefully—is the decline of stock price related to the general market sell-off or is there a systemic problem with the company?
We, at Paragon Financial Advisors, will be happy to discuss your portfolio and circumstances with you in these “interesting” times. Please feel free to contact us.  Paragon Financial Advisors is a fee-only registered investment advisory company located in College Station, Texas. We offer financial planning and investment management.
NOTE: All investing involves some degree of risk and possible loss of principle. Stock offer greater long term growth potential but may have wider and greater price fluctuation while yielding lower current income. Bonds may involve credit/default risk resulting in loss of principle; they historically have provided consistent income. Alternative investing and techniques are specialized situations and should be used only when one understands the risks and restrictions involved. Nothing in this discussion should be construed as a general investment recommendation; appropriateness is dependent on the investor and his/her particular circumstances.

Thursday, February 11, 2016

Social Security Changes

The Bipartisan Budget Act of 2015 passed by the 114th Congress in December made some changes in benefits that were available for claiming Social Security benefits. How, and when, individuals and couples claim their Social Security benefits can have significant impact on the amounts received over the claimant’s lifetime(s). Usually, the minimum age for claiming benefits is 62; however, benefits will be reduced by 6 2/3 % for each year younger than the “full retirement age” (FRA) at which benefits could be received with no reduction. That FRA is dependent on the claimant’s date of birth. Benefits increase by 8% per year for each year beyond FRA that a person waits to start drawing his/her Social Security. The increase in benefit applied only until age 70; no further increase is available after that age. Two major changes were impacted by the Budget Tax Act; it eliminated “file and suspend” and “spousal benefit” provisions. The old rules are in place until April 30, 2016; after that, new rules are in place.

File and Suspend

The file and suspend provision allowed on individual who had reached his/her FRA to file for Social Security benefits but defer the collection of those benefits until sometime in the future. That delay allowed the recipient’s benefits to increase by 8% per year until benefit payments actually started. If, during that suspension time, the claimant decided to receive the original payment from FRA, that option was available. And, a lump sum for the amount that would have been received was available. In addition, auxiliary benefits might be available to a spouse or minor dependent. The real benefit was the spousal benefit (see below).

Restricted Claim for Spousal Benefits

The spousal benefits provision allowed a spouse (who had reached FRA) to file for 50% of their spouse’s Social Security benefit (who also reached FRA) while letting their own benefit grow. For example: Spouse A could receive $2000 per month at FRA; that spouse “files and suspends.” Spouse B (at FRA) could receive 50% ($1000 per month) while both spouses let their own benefits increase by 8% per year until age 70. Spouse B could then take the larger of the 50% or his/her own benefit.

The Rules Change

After April 30, 2016, an individual may still file and suspend at FRA; however, no one else may collect any benefits on the individual’s record while the suspension is in place (subject to the exception below). In addition, the option to request a lump sum payment for deferred benefits no longer exists.

Anyone who is age 62 or older at the end of 2015 retains the right to claim only spousal benefits when they reach age 66 and receive their (hopefully larger) retirement benefit at age 70. Anyone younger than 62 at the end of 2015 will no longer have the option of which benefit to claim; they will be paid the higher of their own benefit or as a spouse.

Divorcees who were 62 or older at the end of 2015 fall under the four year phase in rule also. They must have been married at least 10 years, divorced two years, and are currently single. They can file for spousal benefits at age 66 and change to their own higher benefit at age 70.

We at Paragon Financial Advisors work with our clients to help them achieve their financial goals. That includes evaluating Social Security options; we do request that each individual discuss his/her personal circumstances with the Social Security personnel to confirm their personal history. Paragon Financial Advisors is a fee-only registered investment advisory company located in College Station, Texas. We offer financial planning and investment management.

Tuesday, January 12, 2016

Happy(??) New Year! - 2016

The Markets-2015
Well, 2015 is in the rear view mirror; and what a year it was from an investing perspective. Let’s look back at the financial markets over the year. The S&P 500 was down .73% for 2015; the Dow Jones Industrial Average was down 2.23%; the Barclay’s Aggregate Bond Index was down 1.84%; and interest rates on the 10 year US Treasury rose from 2.09% in January to 2.27% in December (with a corresponding decrease in bond values). This means that a blended portfolio of 50% stock in an S&P index fund and 50% bonds in an aggregate bond index fund would have returned negative 1.29% for the year.
But that’s not the whole story. When we look at the components of the S&P (the sectors that comprise the index), we find an entirely different story. There was significant difference in the sector performance—as follows:
Sector                                                   2015 Return                        Weight in Index

Consumer Discretionary                           +8.4%                                    12.8%

Healthcare                                                 +5.2%                                    15.2

Information Technology                           +4.3%                                    20.5

Consumer Staples                                     +3.8%                                    10.2

Telecommunications                                 -1.7%                                     2.5

Financials                                                  -3.5%                                     16.5

Industrials                                                  -4.7%                                     10.0

Utilities                                                     -8.4%                                      3.1

Materials                                                   -10.4%                                    2.7

Energy                                                       -23.6%                                   6.4
In addition, there was significant volatility in stock prices in 2015. The S&P 500 index crossed over its flat line beginning value 26 times (positive to negative and vice versa) during the year. Looking at the consumer discretionary sector (up 8.4% for the year), had volatility of monthly changes during the year ranging from +9.0% to -6.6%.
What does this tell us? First, while there is empirical evidence giving credence to passive index investing, such a strategy would not have worked well in 2015. Second, the variation in sector returns implies the opportunity for positive returns exists through active investment management. But what form does that active investment take?

Looking Ahead
One can read all the tea leaves from the past and discuss what has happened historically in similar circumstances e.g. market performance in election years, market performance post interest rate increases, etc. But, if one is pursuing an active management strategy, looking at the current state of affairs should assist in the active management tactics to take going forward. Some macro-economic items to be considered (by no means a comprehensive list) are listed below:

  1. Interest Rates—The Federal Reserve has begun its policy of “normalization” with its first rate increase in December, 2015 (up 0.25%). The Fed’s policy statement from December, and Chairwoman Yellen’s press conference, has been focused on inflation as the primary driver of future rate increases. The Fed’s 2% target inflation has not been forthcoming and has driven speculation of another 1% rise in rates in 2016. However, economic indices offer different (and sometimes conflicting) information that may affect this rise in rates.
  2. Oil Prices—As we begin 2016, oil is currently in the sub $40/bbl. range. This is a boom to some parts of the economy (the general consumer) but a bust to others (oil related industries). There is significant turmoil in the Middle East but the need for oil revenues should continue as many countries are so dependent on oil revenues that reduced production does not appear to be a factor.
  3. Strong US Dollar—The US $ has been strengthen over the last two years, making US exports more expensive to foreign markets and multi-national overseas corporate earnings worth less if repatriated to the US. While this strengthening may slow down, it is doubtful that there will be a significant decline.
  4. US Gross Domestic Product (GDP)—Current projections for economic growth in the US are in the 2-2.5% range; by no means robust but significantly better than the global outlook. The tax cut-spending package passed by Congress in December will add a stimulus to GDP but with a corresponding deficit that will likely increase in 2016 by 1% of GDP. The debt-to-GDP ratio (already at troubling levels) will begin to rise again. (Note: This excessive debt is a subject worthy of its own discussion and more than we can include here!)
  5. Global growth is slowing; especially China which appears to be transitioning from manufacturing and construction into services.
So what does the astute investor do? Economic indicators are giving conflicting advice.

  • Rising interest rates imply decreases in bond values.
  • Unemployment rates are coming down (don’t ignore the calculation methodologies of this number), but the percent of the labor force employed remains at historic lows.
  • The Institute for Supply Management (ISM) December, 2015 manufacturing data showed a contraction for the second month. Overall manufacturing is slowing, but new orders and production increased over November. The ISM manufacturing index for December was 48.2; anything above 50 indicates economic expansion and anything below 50 indicates contraction.
  • Credit spreads (the difference between “high yield” or “junk” bond yields and high quality bond yields) are increasing; this implies a greater risk in the junk bond market.
  • There is a widening gap between corporate earnings and sales results. In the third quarter of 2015, 60% of reporting companies exceeded their earnings per share (EPS) estimate; however, 59% of the reporting companies missed their sales estimates. How did this happen (expense reduction??)? In addition, there is a widening gap between the normal accounting EPS and the “adjusted” EPS being reported by some companies. Adjusted EPS eliminates some “extraordinary” or “non-recurring” expenses which results in a higher EPS. The gap between normal and adjusted EPS has been approximately 30% (normally about 10%) with adjusted being the higher.

What to Do?

Given the above, what’s an astute investor supposed to do?

First of all, consider your goals and objectives. Position your portfolio according to those goals and your risk tolerance. Attaining your goals with a risk level that makes you sleep well at night is more important than “chasing return.” For example, some investors have been increasingly pursuing risker assets in their search for maximum return. But if your goals are funded by a more moderate approach to returns, why take the extra risk. This shift basically involves an “asset-liability” matching strategy (matching your needs from the portfolio against your asset allocation) vs. a “maximum return” strategy.

Second, use these periods of market volatility (a normal part of market activity) to reposition diversified portfolios to your target levels.

Third, continue to maintain a diversified portfolio consistent with your goals and objectives. It is important to note here that diversification may be taking on a new meaning. The traditional “stocks, bonds, cash, commodities” portfolio allocation may require a different perspective; a perspective that provides more flexibility and a wider opportunity set of choices. There other markets available which may provide suitable investments (infrastructure, re-insurance, emerging markets, frontier markets, etc.). Alternative investments and hedge fund techniques (real estate, long-short investing, merger/acquisition, distressed security investing) may be beneficial in a portfolio. However, these investments/techniques have peculiar characteristics (possible lack of liquidity, extremely long time horizons, etc.) which require due diligence before investing.

We, at Paragon Financial Advisors, assist our clients in reaching their desired financial goals with an appropriate risk level. Please feel free to contact us.  Paragon Financial Advisors is a fee-only registered investment advisory company located in College Station, Texas. We offer financial planning and investment management.

NOTE: All investing involves some degree of risk and possible loss of principle. Stock offer greater long term growth potential but may have wider and more price fluctuation while yielding lower current income. Bonds may involve credit/default risk resulting in loss of principle; they historically have provided consistent income. Alternative investing and techniques are specialized situations and should be used only when one understands the risks and restrictions involved. Nothing in this discussion should be construed as a general investment recommendation; appropriateness is dependent on the investor and his/her particular circumstances.

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