Home Finance Page 31

Finance

Guide to Debt Investments

Guide to Debt Investments

What are Debt Investments?


• A debt investment, is the process of investing in someone or something’s (corporation or government entity) debt schedule; the owner of a debt security, in essence, is betting that the issuer of the debt instrument is going to pay-off, in full, the underlying debt obligation.
• Debt investments are loans given to individuals or companies to finance property or projects. When the loan is given, the borrower is required to pay you back, typically with interest. If the property or project is pledged as collateral for the money borrowed, the lender may reclaim the collateral if a default is realized. 
• Debt investing requires betting against or with the financing of someone’s property or other endeavor. The process is initiated when the investor loans funds to a corporation or individual for the purchase of something; when the borrower makes payments it is kicked back, with interest, to the lender. Now, debt investments are typically packaged together and sold in bundles so it is 
• Debt investments typically involve the exchange of a debt security, such as, bonds, collateralized debt obligation (CDOs) or collateralized mortgage obligations (CMOs). 
Debt Investment Process:
• In a general sense, the debt investment process works through an initial purchase of bonds or debt obligations. Bonds, in essence, are promissory notes that are purchased at face value. The bond package will indicate that the investor reached an agreement with the issuing entity in which he or she is investing with. When purchased, the bonds signify that the issuing agency has a debt with you.
• When the bond reaches its maturity date (will take at least six months), the investor may redeem it or cash it in. At this time, the issuing company will pay you the face value (the amount you paid into it) of the bond or debt, plus all interest earned. 
What are the Benefits of Debt Investments?
• Investing in debt, in most instances, is a prudent means to receive fixed income. The risk aversion stems from the fact that bonds are backed by the issuing organization; if the bond goes into default the organization will receive a poor credit or bond rating. Additionally, even if the bond defaults, an investor can obtain a profit by seizing the company’s assets. The obtainment of debt investments also enables the holder of the debt to accurately predict, because of the coupon attached, their expected payments or profits. 
• That being said, the level of risk is associated with the underlying debt investment’s rating. Those that are rated lower are more likely to default and vice versa.
• In addition to being relatively safe, debt investments provide a form of insurance or leverage for higher risk investments in an individual’s portfolio. 
Drawbacks to Debt Investments:
• Purchasing debt investments requires the investor to go through a broker dealer or investment bank; this requirement will invariably mandate the inclusion of broker fees. Furthermore, all debt investments come with the risk of the issuing corporation or agency defaulting; however this risk is made tangible through the issuance of bond ratings. 
• Debt investments also do not provide immediate returns. This illiquid feature disables the investor from withdrawing cash from his or her investment.

Immediate Annuities: A Brief Summary

Immediate Annuities: A Brief Summary

What is an Immediate Annuity?


• An immediate annuity is a type of annuity that provides people with a guaranteed source of income for life. All annuities can be classified in of two broad categories: deferred or immediate. A deferred annuity is a tax-deferred account where the owner provides a lump-sum payment. In contrast, an immediate annuity is enacted when the holder transfers a lump-sum balance to an insurance company, and, in return, receives payments based upon a pre-approved agreement. 
• An immediate annuity is typically utilized as a source of retirement income. In an environment where a number of retirees are left without a pension an immediate annuity is an investment option that will provide guaranteed periodic payments. 
How do Immediate Annuities Work?
• An individual may purchase an immediate annuity from any insurance company. When purchased, the immediate annuity will transfer payments to the holder within one years’ time. This characteristic is the most significant aspect of the immediate annuity; dissimilar to other retirement plans, which are paid into throughout the course of employment, the immediate annuity will kick-back funds within a year of purchase. 
• When purchasing an immediate annuity there are number of factors to consider; an individual can personalize their immediate annuity plan to distribute payments in a set structure or over the holder’s lifetime. Furthermore, the individual can decide on whether the payments are solely for the person who holds the immediate annuity policy or also for a second person, such as a family member. The minimum payments must also be acknowledged before finalizing an immediate annuity; typically an investment of $10,000 is needed to open an account.
What are Annuity Rates?
• Annuity rates refer to the amount of payment provided by the annuity. When you purchase an annuity, an insurance company will offer annuity rates based on your income and specific variables associated with your retirement plan. 
• Annuity rates are attached to all annuity plans, but will fluctuate in regards to their execution given the type of annuity they are attached to. For example, in a fixed annuity, the annuity rate will be locked in as a percentage. This percentage will signify your payment; the fixed annuity rates will not fluctuate and will be delivered, without fail, in a periodic fashion (the annuity payments may be distributed annually, biannually, quarterly or monthly). 
• The annuity rates associated with an immediate annuity are fixed; the payments will not vary for the life span of the investment package. The amount of money you receive from the immediate annuity is solely dependent on the sum you paid in, the interest rate when affirmed the contract and your age.  

Fixed Annuities: What to Know

Fixed Annuities: What to Know

What is an Annuity?


• An annuity is a financial instrument that provides fixed payments over a specified period of time. An annuity provides a distribution of finances, earned on an investment in a fixed schedule; the payments are allocated to the holder of the annuity in quarterly, monthly, biannually or annually installments.
• An annuity is typically used as part of a retirement plan; the instrument is a fixed-income investment that ensures stable income once the holder stops working. The most common form of an annuity is a pension fund; while the retiree was working, the individual paid a portion of his or her salary into a pension fund, which is invested. Once the holder retires, the return on the investment takes the form of an annuity and is disbursed periodically to the individual.
What are Annuity Rates?
• Annuity rates refer to the amount of payment provided by the annuity. When you purchase an annuity, an insurance company will offer annuity rates based on your income and specific variables associated with your retirement plan. 
• Annuity rates are attached to all annuity plans, but will fluctuate in regards to their execution given the type of annuity they are attached to. For example, in a fixed annuity, the annuity rate will be locked in as a percentage. This percentage will signify your payment; the fixed annuity rates will not fluctuate and will be delivered, without fail, in a periodic fashion (the annuity payments may be distributed annually, biannually, quarterly or monthly). 
What is a Fixed Annuity?
• A fixed annuity is an interest-based vehicle that holds a number of similarities with bank-issued CDs; however, a fixed annuity is geared specifically towards retirement savings. In the majority of formations, a fixed annuity, for a lump-sum cash offering, will lock in a fixed interest rate ranging from 3% to 10% for a period of 3 to 15 years. The initial deposit for a fixed annuity, known as the premium, will typically range between $5,000 and one million dollars. 
• A fixed annuity features a single premium; to purchase a fixed annuity an individual must provide a lump sum up-front payment. Once the payment is delivered, the fixed annuity will lock in a fixed interest rate for a specified number of years (like a CD). 
• A fixed annuity is available for short, medium or long terms—longer-term fixed annuities will yield higher rates. Additionally, an individual can invest as much as they want and unlike a 401(k) or Roth IRA may purchase additional fixed annuities.
Advantages:
• A fixed annuity is an extremely low risk investment vehicle. The insurance package is tax-deferred and provides more liquidity than a commercial deposit. Furthermore, the fixed annuity will offer a yield that is typically higher than money market accounts, bonds, Cds and treasuries.
• The majority of fixed annuities will feature a lifetime income option, which will allow the holder to convert accumulated savings into a guaranteed monthly payment. This option is enacted by a number of retirees who, without any substantial income, can better budget themselves.