Before we get into an annuity calculator, let us first understand the concept of annuity. An annuity is an investment vehicle that is sold by a commercial financial institution. An institution will accept an annuity payment from an investor, at one point  of time, and then pay out a stream of income on those annuities, until the time of death of the investor. Annuities are mostly used to plan for retirements, where older people wish to live off a fixed income that they will receive as a result of their annuity investment in their younger days.

While the concept of annuities is very convenient, deciding on the annuity amount can be quite tricky. That is where an annuity calculator comes into the picture. It will help the investor see what sort of payments they will get at a later point in life. An annuity calculator will make use of several factors such as age, gender, and tax rate to give you an idea of how much you will have to invest in an annuity, to get a particular payment on a monthly basis, during your retirement years.

A word of caution about using annuity calculators

While an annuity calculator will definitely give you a starting point to plan your retirement income, it will generally be a good idea to sit down with a financial planner to finalize your annuity amount. This is important because there are several factors that will not be considered in an annuity calculator. For example, most annuity calculators will not use the tax rate that is applicable to a certain individual. A financial advisor is a safer way to plan for your retirement as he or she will be able to give you a good idea of how much cash flow you will need to sustain a certain lifestyle. If you went about planning your annuity payments on your own, you could shortchange yourself and not have enough to support yourself in your retirements years, as you might have invested too little.

Examples of results from an annuity calculator

Let us say that you are a 50 year old male in the State of Georgia who wants to receive $1,000 in monthly payments, for the rest of your life. For that to happen, you will need to invest over $224,000 in annuity investments.

If you are a 50 year old female in the state of Georgia who wants the same $1,000 monthly payment for the rest of your life, you will need to invest $236,000 into annuity investments.

The amount of investment into annuities to receive $1,000 in monthly payments will begin to decline as the age increases. For example, a 65 year old man in Georgia will only have to invest $165,000 into an annuity investment to receive $1,000 in monthly payments or cash flow.

The examples above are results provided by an annuity calculator that uses a fixed rate of return. However, there are some annuities that are calculated with a variable rate of return that is based on the performance of the annuity fund. While such funds may result in higher monthly payments, they also have the risk of going belly up or result in lower yields that will result in lesser monthly payments over time.

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Bond Calculator

Investing in bonds can be quite tricky as you will need a good handle on many financial concepts such as yield, maturity date, face value, yield to maturity and cash to be paid at the time of maturity. Thankfully, the Internet is full of websites that will give you free access to a bond calculator, that will make the calculations for you.

But, even to use a bond calculator, you will need to understand the basic concepts that are applied by the bond calculator.

How does a bond calculator work? Elements used for calculation in a bond calculator

Yield% – This element is used to describe the income that is earned on an investment. The yield % is usually an indicator of dividend or interest that is received from a particular investment type. In the case of bonds, yield % refers to the interest rate.

This is how the yield on a bond is calculated. Let us take an example where a bond is bought at $1,000 par value, at a 10% coupon rate. In this case, the bond yield is simply calculated as $100/$1,000. Now, let us assume that the price of the bond drops to just $800. In this case, the bond yield will go up to 12.5%. On the other hand, if the price of the bond goes up to $1,200, the bond yield will drop to a figure just over 8%.

Yield to maturity – This is another very important factor that is used in a bond calculator. The example mentioned above is a very simple one. However, yield to maturity will require a more complex calculation. When calculating yield to maturity, it is assumed that the investor will hold the bond until the day it matures. So, it is also assumed that any interest earned on the bond is reinvested back into the same bond. In essence, yield to maturity is like applying compound interest to the investment while the above mentioned example is a simple depiction of how simple interest would be applied in a bond calculator. The yield to maturity will also include any profits or gain that the investor made, by buying the bond at a discount, if they did.

Calculating yield to maturity is not something that the general public will be able to do, or at least successfully do. This is where a bond calculator will be very handy as it will spit out what you need quite easily.

How is bond price and yield linked to one another by a bond calculator?

In general, bond price and yield are inversely linked to one another. In other words, if the price of a bond falls, the yield will increase. If the yield decreases, the price of the bond will increase. The price of a bond is also linked to the interest rates that are available in the market. If the interest rates of the economy increase, the price of the bonds will fall and lead to an increase in yield. On the other hand, when interest rates decrease, the price of the bond will increase and the bond yield will reduce.

In the world of investing, dividend stocks stand apart from most investment vehicles because dividend stocks allow the investor to get a part of the company’s profits. That is not something you can say of most investment vehicles.

Below, we will give you a brief introduction to dividend stocks and high dividend stocks in particular.

What is a dividend?

Most public companies do not pay dividends. However, some companies, like Microsoft, will pay out dividends to their stock holders, where the stock holders are able to get a chunk of the company’s profits. One will have to carefully look through stocks in the market to find good dividend paying stocks. Finding good high dividend stocks can be even more difficult as there are few companies that still issue high dividend stocks, especially in today’s economy. Dividends can be paid at any time and in any amount, at the discretion of the company’s management.

Terms to understand about high dividend stocks

Dividend yield – A dividend yield is simply calculated by dividing the actual dividend amount by the stock price. The higher the dividend yield, the more the chances of a stock being considered as one of the few high dividend stocks in the market today.

What are some of the high dividend stocks that are available in the market today?

When one begins to hunt for high dividend stocks, they will often find that high dividend stocks are often offered in only a few select industries. Some of the most popular industries that have been known to issue high dividend stocks are industries such as real estate, telecommunications, utility companies and certain financial companies. Of late, it would be extremely difficult to find high dividend stocks in the financial industry as the whole finance industry is still crippled and trying to recover from the Sub-Prime crisis.

Apart from the above mentioned industries, high dividend stocks are also issued by companies that are profitable but also experiencing  very little growth. Such companies will not have opportunities to reinvest their profits and will instead deploy the profits in the form of dividends that are paid out through high dividend stocks. For companies such as the ones just described, high dividend stocks will give them an option to keep shareholders happy. Shareholder might otherwise leave as there is not much room for the company’s stock price to appreciate.

It is important to look for high dividend stocks that will continue to grow

When hunting for high dividend stocks, it is very important that an investor not fall for high dividend stocks that simply pay some of the highest dividends in the market today. Instead, they should look for high dividend stocks whose stock price will continue to grow in the future.

Why some high dividend stocks are risky?

We just mentioned that you must be a little careful about choosing high dividend stocks. If you blindly pick high dividend stocks by selecting stocks with a high dividend yield %, you could be selecting stocks with a very low share price as opposed to picking stocks that pay good dividends.  You must only look for stocks that have a high dividend yield and also a share price that is very competitive in the market.

Whether you are a savvy investor or just a beginner who wants to gets his or her feet wet in the investing world, there is a good chance that you know about mutual funds. By definition, mutual funds are investment vehicles that will allow you to buy investment holdings in various companies and markets, by buying just one investment vehicle.

For example, instead of buying separate stocks in hundreds of technology companies, one can simply invest in mutual funds with a technology portfolio. Below, you will find a few basic details about mutual funds that will help you understand the popular investment vehicle better.

How to choose mutual funds?

This is a very objective question that will depend on so many factors that are relative to you. For example, the choice of mutual funds for you will depend on factors such as your willingness to take risks, your investment horizon, your preferences to invest in certain markets and so on. So, if you are a investor who is interested in the communications industry and have a 10 year investment horizon and are also willing to take a fair amount of risk, you will look for mutual funds that have that similar criteria. The market is full of a diverse set of mutual funds and there is a very good chance that one of those mutual funds will match your needs, or at least come very close to matching your needs.

Be aware of risk

Though mutual funds are supposed to be baskets of investments in various sectors, industries and companies, they still do carry a fair amount of risk, especially in today’s market condition. So, when investing in mutual funds, one should always perform their due diligence to gauge the risk factor. Again, this will vary from person to person, depending on their investing aggressiveness and ability to take risks.

Invest in many mutual funds

This point of advice is along the lines of the tip that was just mentioned above. Though there are some large mutual funds that have a great diversification factor, it might still be a good idea to invest in many mutual funds, as opposed to dropping all your investment on one large mutual fund. When it comes to diversification in investment, there really is no maximum or what you call as overdoing, as long as the mutual funds or other investment vehicles are chosen with diligence.

Costs of investing in mutual funds

Mutual funds are put together by financial companies who will charge you for the convenience offered by mutual fund vehicles. Common fees will include front load and back load expenses. What this essentially means is that you will have to pay a %, typically about 5%, as a fee, when you get in and out of mutual funds. So, if you are investing $10,000 in mutual funds, you will have to pay $500 as a front load fee and invest the remaining $9,500 into the mutual funds. When you sell your mutual funds, you will again have to pay 5% of the sale price as a fee.  The fee structures varies from fund to fund and some funds will also charge you an expense ratio, where you will pay about 1-2% of your investment amount as ongoing expenses, for the duration of your investment in that particular fund.

If you are investing in dividend stocks, it is very important that you know about dividend yield. This article will give you an introduction to dividend yield and it will also give you a few pointers on how to avoid stocks with risky dividend yields.

What is dividend yield?

The dividend yield is one of the key metrics that is looked at when an investor is considering investments in various dividend stocks. The formula to calculate dividend yield is very simple. To get the dividend yield, one will simply have to divide the annual dividend amount by the current stock price.

Example of dividend yield

Though the above mentioned formula for dividend yield might have been quite easy to grasp, it is always a good idea to look at an actual example with numbers.

Let us say that a dividend paying stock trades in the market for $20. Now, one might want to know the yield of that dividend stock before they consider it for purchase. A quick look at the financial statement tells the investor that the particular stock paid out $1 in annual dividends. In this case, the dividend yield is very simply calculated as 5%, after the annual dividend is divided by stock price; i.e., $1/$20.

 If a stock has a high dividend yield, does it make it a good stock?

A high yield does not make a dividend stock a better stock than a dividend paying stock with a lower yield. If anything, one should be cautious about a high yield dividend stock, for the following reasons.

Some companies will have a high yield on their dividend stock that will look attractive. However, upon closer analysis, the investor might discover that the stock price has recently taken a beating, thereby artificially pushing up the yield. Using the above mentioned example, let us assume that the company had a very poor year, which resulted in the stock price dropping to $10, all the way from $20. Now, if the investor only looked at the dividend yield, which is now 10%, it looks like a very attractive stock when in reality it is a very poor stock, as the stock price has fallen by 50%.

One should also be very careful about choosing dividend stocks that do not have a long history of paying dividends. Dividend stocks are attractive only when the company has paid consistent dividends, over a long period of time. One of the most ideal dividend stocks is Microsoft, which has been very solid with dividend payments, even during tough times.

This does not mean that dividend stocks with a short history are no good. It is just that one has to proceed with caution when they are buying dividend stocks that do not have an established track record.

After considering the track record and dividend yield of a stock, one must also look at the future potential of a company. Will it remain profitable? Will it continue to grow? Will it generate enough cash to keep paying dividends? These are just some of the questions that need to be answered before one picks up a dividend stock.

To begin our introduction to savings bonds, you must know that savings bonds are investment vehicles that cannot be sold, traded or gifted to anyone other than original recipient of the savings bond. Savings bonds are only issued by the Treasury.

Why are savings bonds preferred as investment securities?

Savings bonds are very popular in the United States simply because they are supposed to carry a low amount of risk, as they are fully backed by the United States Government. Though this aspects of savings bonds has become slightly questionable in the recent past, with the Government struggling financially, it is still supposed to be one of the safest investment securities that is available in the market today.

Another important reason for the popularity of savings bonds is that they are exempt from state tax. So, one will not have to pay state or local taxes on earnings from savings bonds. One can also defer the federal income tax on savings bonds until the date of maturity or when they decide to cash it out. There are also a few select savings bonds that are also free of federal income tax.

Savings bonds are quite popular because people can invest as little as $25, which is not something you can say of other investment vehicles and markets that will require a substantially larger minimum investment.

Types of savings bonds in the U.S.

Series EE bonds – These bonds can be bought in paper or by purchasing them electronically. There is a $5,000 purchase limit on these bonds that is applicable for one calendar year. One will have to wait for five years to let this bond mature. If one decides to cash in the bond before a period of five years, they have to forfeit interest payments for the last three months before the date of cashing in.

Paper EE bonds – These savings bonds are bought at a 50% discount of their face value. So, you will essentially pay $50 for a $100 bond. However, the catch is that one will have to wait 30 years to receive the principal and all the accumulated interest. These savings bonds are very good, long term, low risk investments.

Electronic EE bonds – These bonds are bought without a discount and you will have to pay $50 for a $50 bond. The advantage with this bond is that the interest will be electronically credited to an account that you specify, in a convenient manner.

Series I bonds – Series I bonds can be bought in paper form as well as electronic form. They are sold at face value and an individual can only purchase $5,000 of these bonds, in one calendar year. If one redeems these Series I savings bonds before a period of five years, they will lose interest on the three most recent months. However, there are no penalties after the five year period.

Many people go with savings bonds as their choice of investment vehicle as the risks are quite low, especially when one takes into account the volatile nature of the current economy.

Yield management is a pretty complicated or sophisticated concept to explain in a very short manner. If yield management has to be defined in one sentence, it could be defined as  “a revenue optimizer for large corporations, where the operations of many departments are optimized in the most cost efficient manner possible, to increase profitability”.

The passages below will give you more of an introduction to yield management.

Expanding on the definition of yield management

As mentioned earlier, yield management actually refers to cost management that will lead to revenues and profits that result in high profitable yields for the company. To further explain the concept, let us take a look at a real life example of yield management.

Let us say that a grocery store is not doing very well. Grocery stores operate on razor thin margins and small losses or delays in operations can easily put them in the red. If a yield management consultant comes in, he or she will begin to analyze the operations of the grocery store. He or she will study many different departments in the grocery store. They will take a look at the sales, supply chain, storage and even the pricing to see if the groceries can be sold at a more profitable rate. Often times, yield management will result in a significant improvement in profit margins as the various departments in a grocery store are usually micro managed and not managed as a collective group. Yield management is why you see products like meat go through different prices for the same weight, especially when they get closer to the expiry date.

What are some of the major industries that use yield management?

Airlines industry – The airline industry is a prime candidate for yield management. Did you know that almost all the seats of the same flight can be priced very differently. In some cases, a person could have paid $500 for a ticket while the person sitting next to them could have paid as little as $100. These prices are calculated by applying yield management techniques.

The guy who paid $100 to get the ticket might have booked the ticket two months in advance while the guy who bought the $500 ticket might have bought it 15 minutes before the flight took off.  In this case, yield management based pricing allowed the airline to cash in on the desperate demand of the customer who paid $500 to get on the plane. The airline company just has to hope that the two people don’t talk to each other, especially about their ticket prices.

Hotel Industry – Have you ever wondered why hotel rooms have such diverse prices? Sometimes, one might get to stay in a suite for the price of an upper class room and think that they are being treated in a special manner. However, the special deal would have been a result of instructions read out by a computer that might have decided the price that the person will pay, on a slow night, to maximize revenues of the hotel.

Other big industries that make use of yield management on a daily basis are rental companies, bus companies, insurance companies and even telecommunication companies.

If you are a savvy investor, the term compound interest will probably excite you, as it will allow your investment to multiply at an extraordinary rate that will increase substantially over time, especially over a long period of time. If you are a beginner who wants to learn more about compound interest, you will definitely find the passage on compound interest, mentioned below, to be very useful.

Understanding compound interest with an example

To understand the concept of compound interest, let us look at the following example. You are an investor who is able to invest $10,000. You decide to invest that money into a combination of stocks and mutual fund investments that will yield about 12% per annum, on an average, over the next 50 years. While 12% per annum might not sound like much to get excited about, you will definitely be excited about it when you see the effect of compound interest on it.

When $10,000 is left in investments that will yield about 12% per annum, the investment amount multiplies to a whopping $2.89 Million after a period of about 50 years. This happens only if the money made on the initial investment is reinvested into the overall investment scheme, on a continual basis.

So, at the end of the first year, with the above circumstances, one would have earned $1,200 on the $10,000 that they put in. For the second year, the 12% annual return will apply to $10,000 + $1,200 = $11,200. As you can see, this figure will gradually increase over a period of 50 years, leaving the investor with close to $3 Million, thanks to compound interest.

Of course, though compound interest sound like an easy investment plan, one must understand that it would be difficult to find investment vehicles that will yield an average of 12%, over a long period of 50 years.

Being careful with compound interest

With compound interest, one can easily get carried away, trying to look for investments that will yield upwards of 12%. However, higher yields means high risk. If one invests very aggressively, they will get huge returns when the investments are successful. However, if the investment fails, compound interest will do nothing to stop the losses and a bad investment can essentially result in a total loss, where one is not even able to recover their initial investment amount.

So, one has to be very careful about how to use compound interest. Instead of going after the 12+% mentioned in the example above, one can still make a decent amount of money with compound interest by investing in less risky investments that will also pay lower yields.

For example, if someone invested their money in low risk treasury bills that yield about 4%, compound interest will still cause the initial $10,000 investment to grow to a substantial $71,000 over a period of 50 years. A slightly more risky investment that yields about 8% on a yearly basis, will make $10,000 grow into about half a million, over a period of 50 years, thanks to the power of compound interest.

High yield bonds are a specialized type of investment vehicle that is used by corporations, certain banks and even foreign governments to raise money from American investors. The passages below will provide more information about high yield bonds.

What is a bond?

Before we get into high yield bonds, it will serve you well to understand the concept of a basic bond. A bond, as the name suggests, is an instrument where you as an investor decide to give money to a corporation. In return, the corporation will promise to pay you interest on your loan and also give back your principal amount, at the end of the duration of the bond. The end of a bond duration is usually referred to as a maturity date or a call date, depending on the market that you are dealing with.

However, bonds are subject to risk. In other words, some bonds are safer than some other bonds. In some cases, a corporation might simply not be able to fulfill the returns it might have promised. When that happens, it is called a default. High yield bonds are generally considered to be risky bonds. These high yield bonds are discussed in more detail below.

High yield bonds

Some corporations will simply not qualify for high grade investment bonds that will allow them to procure capital at reasonable rates. This usually happens when corporations get a poor credit rating from rating agencies such as Moody’s Investors, Standard & Poor’s or Fitch Ratings. The just mentioned rating agencies will analyze a corporation’s ability to pay interest and also pay back the principal amount.

If the analysis proves that the corporations might not be able to satisfactorily pay for the interest and principal, the agencies will rate the corporations as below investment grade.

When that happens, those corporations will seek out high yield bonds, where they secure capital from the public by issuing bonds that will pay higher than average interest rates. High yield bonds are supposed to yield higher returns as the investor is risking his money with corporations that are rated as below investment grade. Since there is a fair amount of risk associated with such corporations, the investor will expect a high yield return for his or her willingness to invest in company with a less than impressive financial track record.

How do rating agencies rate corporations that will qualify for high yield bonds?

If you have followed the markets, you must have definitely seen that some investments carry ratings such as AAA, AA, B and so on. These are ratings that are awarded to corporations, based on their track record, financial health and ability to meet future financial obligations. Bonds with a less than BBB- rating are usually referred to as high yield bonds.

Bonds with a rating that is higher than BBB- are referred to as investment grade bonds. What is interesting about the high yield bonds market is that many investors such as large banks and insurance companies are not permitted to invest in high yield bonds. This allows the general public a better chance to invest in this high yield market although it does come with a fair amount of risk, as mentioned earlier.

There are lots of different types of yield but they all basically explain the same thing. The different types of yield are just ways to express different yield calculations. This sounds confusing but will become clearer.

Definition of Nominal Yield

It is the amount of interest paid annually on $1000 worth of the bond. So, a 10% nominal yield is $100. So if you have $200,000 worth of a bond, the nominal yield will be $20,000

Definition of High Yield Bond

High Yield bonds can sometimes be euphemistically termed high risk bonds. They are generally considered a lower grade of investment, but they give you a much higher return on your investment. In this case high return also means high yield. High yield bonds also have a lower credit rating.