Welcome to March; the first day of Spring is March 20 and during my lunch break, I stepped outside to see lots of blossoms. It is also tax season and most of the 1099 are available. Some investments can delay the issue of a 1099, so if yours is delayed and you want to discuss the value of holding that investment, we can chat.
As of March 3, the S&P 500 is down half a percent for the year. The down turn appears to be related to tariffs being created by President Trump. Tariffs can be used to adjust the playing field for products Americans consume. They may provide an incentive to buy American produced goods as opposed to foreign produced. They may protect American jobs. These jobs are important if we expect private companies to find homes for displaced government workers in the wake of DOGE. Change is difficult and we hope the results are worth the pain.
I get a fair amount of questions about bonds as an investment. There is more than coupon clipping going on here. Let’s begin with the basics. First, there is the issuer, the entity issuing the bond, using the money and paying the interest. The issuer could be the government; federal, state or city or it may be a corporation. The bond issue is rated for its’ ability to pay the interest and principal which is an element of the bond pricing. An issue with an AAA rating does not need to pay as much interest as a lower rated issue. Can a company have various issues with different ratings, you bet. The company may offer a bond issue with a high rating and the following year offer a second issue and the rating may be lower due to increased debt or a slowdown in sales that dampens their ability to pay. Is a lower rating reason enough to not purchase the issue? Not in itself. You may decide that the increased interest rate due to the lower rating, may be worth the risk. Lower rated bonds with higher interest are often categorized as High Yield Bonds. Another element of the issue is the payback time frame, typically from 1 year to 30 years. As you might imagine, an issuer willing to pay back in one year (all other things being equal) can offer a lower interest rate than the issuer paying back for 30 years. Of course, these elements are critical in the original pricing of the bond, but bonds can also be sold in the secondary market, kind of like used cars. Issuer financials change and newer bonds are issued and everything is compared to create new price. A new issue is sold at par or $1000, but issues on the secondary market can sell above or below par, depending upon the information and market. Lots to consider when investing in bonds.
Well, no days off in March unless you are especially Irish and take St. Patricks’ Day off. In that case ‘Erin Go Bragh’!
The return and principal value of bonds fluctuate with changes in market conditions. If bonds are not held to maturity, they may be worth more or less than their
original value.