01-18-2006, 7:48 PM | Post #165319 |
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Diehard Larry Swedroe and co-author Joseph Hempen, have written an outstanding book about fixed-income investments. Here is a sample of the "Investment Gems" within its cover:
"Most Americans have more knowledge about William Shakespeare than they do about investing."
"While education can be expensive, ignorance is generally far more costly."
"Investment advice doesn't have to be complicated to be good." (quote from Charles Ellis)
"The prices for many fixed-income instruments, unlike those of stocks, cannot be found in the local newspaper, or even on the internet."
"Prudent investors never invest in any security unless they fully understand the nature of all the risks."
"Yield can be thought of as the price of risk."
"The 'SEC yield' is a standard yield calculation that is required to be used by mutual funds."
"One of the fundamental principles of finance is the positive relationship between risk and expected reward."
"The eight types of fixed-income risks are interest rate risk, credit risk, reinvestment risk, inflation risk, event risk, tax risk, liquidity risk, and agency risk."
"The concept of duration allows investors to compare the price risk of bonds that have different maturities, call dates, and coupon rates."
"Duration has its limits. It only works well for relatively small changes in interest rates."
"Municipal bonds are about ten times less likely to default than similarly rated corporate debt."
"Diversification is the only 'free lunch' in investing."
"It is vital for investors to understand that the costs of trading fixed-income securities can be greatly affected by the manner, and market, in which they are traded."
"Once we move beyond Treasuries, and enter the world of the secondary market for corporate and municipal bonds, the markets become opaque--at least at the retail level."
"If you ever purchase an individual bond be sure that you ask the dealer to disclose both the yield-to-worst and the yield-to-maturity."
The broker-dealer commumity knows that individual investors lack sufficient knowledge about the bond market which makes expoliting them as easy as 'taking candy from a baby.'"
"Investors find it hard to believe that ignoring the vast majority of investment noise might actually improve investment performance." (quote from Richard Bernstein)
"Prices of securities traded on the public market are the best available estimates of their real value because of the highly efficient pricing mechanism inherent in the market."
"Actively managed funds do not, on average, provide value added in terms of returns. -- It pays to be a passive buy-and-hold investor using only low-cost investment vehicles."
"The winning strategy in fixed-income markets, whether taxable or tax-exempt, is to choose the lowest-cost fund that meets your credit and maturity criteria."
"Unfortunately, the longer the maturity, the higher the correlation of fixed-income assets to equities."
"Limit the taking of credit risk to the short to intermediate term and to also limit the taking of credit risk to the highest investment grades."
"The market for Treasury securities is the most liquid in the world."
"Another advantage of owning Treasury instruments is that the interest earned, while taxable at the federal level, is not subject to state and local taxes."
"TIPS are great equity and fixed-income diversification agents."
"The taax deferral feature makes an I bond a more attractive candidate than a TIPS for a taxable account."
"The distinction between saving (preservation of capital) and investing (creation of capital) is a crucial issue for investors to understand."
"A stable-value fund is not a money-market fund and there can be no assurance that the fund will be able to maintain a stable value over time."
"As the credit rating decreases, the correlation with equity returns increases. This is a strong negative feature of lower-rated bonds."
"Well-informed investors avoid the no-win consequences of high-yield fixed-income investing." (quote from David Swenson)
"The main purpose of fixed-income securities for most investors is to provide stability to their portfolio, allowing them to take equity risk."
"The risks incurred when investing in preferred stocks make them inappropriate investments for individual investors."
"Prudent investors should avoid including convertible securities (or any other hybrid security) in a portfolio."
"Emerging-market bonds in a portfolio are not recommended."
"When we consider purchasing an MBS (Mortgage Backed Security) we cannot even know the yield-to-maturity--we can only guess at it."
"If you wish to earn the risk premium that MBS carry, the vehicle of choice is the Vanguard Gennie Mae Fund."
"The 'sweet spot' of the municipal bond yield curve is generally farther out for municipals that it is for Treasuries."
"There is no evidence of the ability to forecast interest rates."
"Past performance cannot be use to predict future performance."
"Municipal bonds carry the risk of a
Originally posted in thread: 46939