Are Your Bonds Safe?

by Manisha Thakor

"Last year I invested in a bond fund and now I've lost money. What happened? I thought bonds were supposed to be safe investments!" 

Recently several people have asked me this same question. Given the turbulent economic times we're (hopefully!) coming out of, it's understandable that folks want to find a "safe investment" to hunker down in.

Alas, the phrase "safe investment" is an oxymoron. The whole point of investing is taking on some risk with the hope, but not the guarantee, of earning a higher return than you'd get from doing something risk free.

So how did bonds get the reputation of being "safe?" Well, at their core, bonds are loans. You lend money for a pre-determined period of time. In return you receive interest at specified intervals. When your loan (a.k.a. bond) matures you get back the money you originally loaned - if the entity hasn't gone bankrupt.

It is the return of that original investment that has caused people to view bonds as "safe" investments. Alas, there are always risks with any investments. The two classic ones for individual bonds are:

  1. Credit Risk: This is the risk that the entity you lend to goes belly up and can't pay you back.

  2. Interest Rate Risk: Bonds are like seesaws. When interest rates go up, the price of bonds go down. If you hold your bond until it matures, the impact is all on paper. But if you are forced to sell your bond before its maturity date and interest rates are higher than when you bought that bond, the price you'll receive will be less than you originally invested.

Another problem with individual bonds is you often need a pretty hefty chunk of change to buy them. This is where bond mutual funds come in. For example, if you had $10,000 to invest you might be able to buy one bond. But by pooling your money with other people's money, bond mutual funds enable you to take that $10,000 and spread it out over many different bonds. That helps you spread out your risk.

However, when individual investors decide to take their money out of a bond fund, the portfolio manager may be forced to sell bonds at less than desirable prices to give them back their money. You could call this liquidity risk. Over the past year, as interest rates have inched up and there have been concerns about credit quality, the price of some bond funds has declined as these risks all reared their heads.

What does this mean for you? It means that like stock funds, bond funds also have some risk associated with them. They should not be thought of as "100% safe" substitutes for FDIC insured savings accounts. Rather, they are intended to be part of a well-balanced portfolio. Another way to keep your risk low is to invest in bond funds that have average maturities of 5 years or less because they seesaw around less violently as interest rates move.

What additional questions do you have about bonds or bond funds?


Want more financial love? You can follow Women's Financial Literacy Initiative founder, Manisha Thakor, on Twitter at @ManishaThakor or on Facebook at /MThakor.

Comment /Source

Manisha Thakor

From Manisha's linkedin profile page:

Manisha Thakor is the Director of Wealth Strategies for Women at Buckingham Strategic Wealth and The BAM Alliance. 

Manisha and her colleagues provide both evidence-based wealth advisory services for high-net-worth households and core asset management solutions for women and families nationwide with $80,000 or more in investible assets. 

An ardent financial literacy advocate for women, Manisha is the co-author of two critically acclaimed personal finance books: ON MY OWN TWO FEET: a modern girl’s guide to personal finance and GET FINANCIALLY NAKED: how to talk money with your honey. She is on Faculty at The Omega Institute and serves as a Financial Fellow at Wellesley College. Manisha is also a member of The Wall Street Journal’s Wealth Experts Panel, a member of the 2015 CNBC Financial Advisor’s Council, and wearing her financial educator’s hat serves as a part of TIAA-CREF’s Women’s Initiative. 

Manisha's financial advice has been featured in a wide range of national media outlets including CNN, PBS, NPR, The Today Show, Rachel Ray, The New York Times, The Boston Globe, The LA Times, Real Simple, Women’s Day, Glamour, Essence, and MORE magazine.

Prior to joining the Buckingham team, Manisha spent over twenty years working in financial services. On the institutional side she worked as an analyst, portfolio manager and client relations executive at SG Warburg, Atalanta/Sosnoff Capital, Fayez Sarofim & Co., and Sands Capital Management. After this she moved to the retail side and ran her own independent registered investment advisory firm, MoneyZen Wealth Management. 

Manisha earned her MBA from Harvard Business School in 1997, her BA from Wellesley College in 1992 and is a CFA charterholder. She lives in Portland, OR where she delights in the amazing Third Wave coffee scene and stunning natural beauty of the Pacific NorthWest. Manisha’s website is MoneyZen.com.

Shocking Statistics on Women & Retirement

by Manisha Thakor

"Do you ever worry about ending up old and poor?"

For many women, becoming the proverbial "bag lady under the bridge" is one of their worst nightmares. Myself included. I literally sit down with my husband and our financial planner twice a year to re-confirm that we are doing everything we can to make sure we do not outlive our retirement savings!

Unfortunately, this fear of ending up old and poor is actually a very rational one for a high percentage of women. 

Recently, I had the chance to hear Karen Wimbish, Head of Wells Fargo Retail Retirement Group, and personal finance guru Jean Chatzky present powerful data collected in a Harris Interactive poll in conjunction with the launch of a new website to help women prepare for retirement, Beyond Today. I'm always looking for useful resources to direct women to, and I think this site can help a lot of folks.

First up, the data: (Put your seatbelts on. The numbers are stark.)                

  • Nearly 1/3 of women between the ages of 40 and 69 are “can’t estimate” how much money they can withdraw annually from their retirement accounts and about 32% of women in their 40s and 50s estimate they will withdraw between 11% – 30% of their savings annually. These are unrealistically high annual withdrawal rates - leaving them vulnerable to outliving their savings.

  • While both men and women are under saved for their retirements, the women polled had saved less than men - with a median retirement savings accumulated to date of $20,000 for women surveyed versus $25,000 for men.

  • Worse still, despite longer expected life spans, when asked how much they were aiming for in retirement savings women aimed lower with a median goal of $200,000 versus $400,000 for men.

    A savvy, 30-year industry veteran, Karen was kind enough to speak with me about some of the factors driving this dreary data - and what women can do to improve the odds that their golden years really will be golden. 

    A couple of key themes kept coming up during out chart. First, while many women are absolutely at the table on a day-to-day basis for bill payment and major household expenditures, when it comes to financial planning or investing – women are more likely to report ourselves as a “joint decision maker” than are married men who are asked this question.  Men are more likely to see themselves as “the primary“ decision maker in financial matters – so there is a disconnect between men and women in terms of the role they see themselves playing.  The survey data also showed women to have less confidence in the stock market as a long-term tool for retirement planning.

What does all this potentially mind-numbing data mean for your life? 

  • If you are in your 20s and 30s: The best action step is to max out your tax advantaged retirement plans (401k type plans and IRAs). Karen points out a great way to do this is to commit to saving a set percentage of your income, rather than a fixed dollar amount, so as your income rises, so too do your contributions.

  • If you are in your 40s: That data shows that this group, which I'm a part of, are the most stressed-out set, sandwiched between entering our peak earnings years while trying to juggle family and elder care responsibilities. In this life stage, the key action step is not to put our heads in the financial sands.

  • If you are in your 50s, and 60s: You are heading into the "red zone" the critical years leading up to retirement where small shifts in how much you save and what you invest in can make the difference. Understanding the gravity of this period is key.

The key takeaway:  At all three stages making sure you are actively engaged with your finances and seeking to self-educate yourself is key. Reading blogs, visiting websites like Beyond Today, and engaging the services of a trusted financial advisor to meet with you on an annual or semi-annual basis can go a VERY long way towards increasing your financial confidence, sense of optimism for the future, and even household harmony.  Just as with your health, no one will ever care about your financial fitness as much as you do. 

What steps are you taking right now to plan for your retirement?   


Want more financial love? You can follow Women's Financial Literacy Initiative founder, Manisha Thakor, on Twitter at @ManishaThakor or on Facebook at /MThakor, and enroll in her innovative new online personal finance course called “Money Rules.”

Comment /Source

Manisha Thakor

From Manisha's linkedin profile page:

Manisha Thakor is the Director of Wealth Strategies for Women at Buckingham Strategic Wealth and The BAM Alliance. 

Manisha and her colleagues provide both evidence-based wealth advisory services for high-net-worth households and core asset management solutions for women and families nationwide with $80,000 or more in investible assets. 

An ardent financial literacy advocate for women, Manisha is the co-author of two critically acclaimed personal finance books: ON MY OWN TWO FEET: a modern girl’s guide to personal finance and GET FINANCIALLY NAKED: how to talk money with your honey. She is on Faculty at The Omega Institute and serves as a Financial Fellow at Wellesley College. Manisha is also a member of The Wall Street Journal’s Wealth Experts Panel, a member of the 2015 CNBC Financial Advisor’s Council, and wearing her financial educator’s hat serves as a part of TIAA-CREF’s Women’s Initiative. 

Manisha's financial advice has been featured in a wide range of national media outlets including CNN, PBS, NPR, The Today Show, Rachel Ray, The New York Times, The Boston Globe, The LA Times, Real Simple, Women’s Day, Glamour, Essence, and MORE magazine.

Prior to joining the Buckingham team, Manisha spent over twenty years working in financial services. On the institutional side she worked as an analyst, portfolio manager and client relations executive at SG Warburg, Atalanta/Sosnoff Capital, Fayez Sarofim & Co., and Sands Capital Management. After this she moved to the retail side and ran her own independent registered investment advisory firm, MoneyZen Wealth Management. 

Manisha earned her MBA from Harvard Business School in 1997, her BA from Wellesley College in 1992 and is a CFA charterholder. She lives in Portland, OR where she delights in the amazing Third Wave coffee scene and stunning natural beauty of the Pacific NorthWest. Manisha’s website is MoneyZen.com.

4 Ways Healthcare Reform Will Affect Your FSA

by Manisha Thakor  

'Tis the season... for open enrollment.

Open enrollment is the annual window where you can sign up for valuable employee benefits such as a Flexible Spending Account ("FSA"). If you work for an employer offering this benefit, trust me.  You want to keep reading.  As a self-employed person not eligible for this benefit right now - I'm here to tell you an FSA is nothing to sneeze at.  Back when I was in corporate America I didn't appreciate FSAs enough - and want to make sure you don't make that same mistake.

FSAs are a great way to plump up YOUR bottom line by enabling you to pay for necessary out-of-pocket medical expenses with pre-tax dollars. As a result, when you sign up for an FSA, you can save up to 40 percent on expenditures that you are going to make anyway. This year, healthcare reform has brought about some changes to FSAs.  To help current and prospective FSA users prepare for open enrollment, I've teamed up with Wage Works on a "Save Smart, Spend Healthy Campaign" to spread the word about what you need to know to make the best choices for you and your family. 

Here are four key differences from last year that you should know about when planning how much to contribute to your FSA account:

1. OTC Medicines Are Still Covered... But You Will Need A Prescription. When there is change, there is often confusion. A number of news stories have inaccurately reported that the IRS is no longer allowing over-the-counter (OTC) medications to be paid for with FSA funds. Thankfully, this is incorrect. The truth is that starting January 1, 2011 OTC medications (excluding insulin) will require a doctor's prescription in order to be paid for with FSA funds. Note: the key word here is "medicines." Other non-medicinal OTC items such as band-aids, crutches and diagnostic kits can still be paid for with FSA dollars prescription-free. The easiest way to prepare for the new rule around OTC medications is simply to have a frank dialogue with your doctor at your next annual exam and get the necessary paperwork (specifically, a prescription) in advance for things like allergy medicine or pain relief capsules.

2. Contribution Caps Are Coming... So Plan Today For Elective Procedures. Starting in 2013, annual contributions to FSA accounts will be capped at $2,500. (Right now contribution caps are set by individual employers, and tend to average around $5,000). If you've been contemplating an elective procedure for you or a qualified family member - such as LASIK or braces - 2011 and 2012 are the last two years in which to set aside and use extra funds in your FSA. Remember, a payment made with FSA dollars is akin to getting a discount of up to 40 percent off since you are paying with pre-tax dollars. So it's really worth it to make an estimate of your FSA eligible expenses for the coming year and sign up to contribute that amount into your account.

3. Adult Children Get A Helping Hand... Under Certain Circumstances. Thanks to healthcare reform your adult children can stay on your healthcare policy up to age 26 - as long as they are not offered coverage by their employer. Now is a great time to check in with your entire family and see who might need coverage and/or whether any of your adult children qualify as dependents. Note: some firms will allow mid-year FSA contributions to reflect the addition of adult children so check with your HR department about their policies on qualifying events.

4. "Free" Preventative Care... Means Some Costs Will Go Away. Last but not least, routine screening for blood pressure, diabetes and cholesterol may no longer require a co-pay. Other cancer screenings like mammograms and colonoscopies as well a pre-natal care visits, vaccinations, and routine infant and childcare checkups may also be provided as part of your baseline insurance - thus requiring no additional out-of-pocket cost. If you had previously used your FSA to pay for these expenses, you can pare back here.

Ultimately, spending a little bit of time understanding how healthcare reform may change the amount you choose to contribute to your FSA for 2011 is an investment that you won't regret.


[Want more financial love? You can follow Women's Financial Literacy Initiative founder, Manisha Thakor, on Twitter at @ManishaThakor or on Facebook at /MThakor.

Comment /Source

Manisha Thakor

From Manisha's linkedin profile page:

Manisha Thakor is the Director of Wealth Strategies for Women at Buckingham Strategic Wealth and The BAM Alliance. 

Manisha and her colleagues provide both evidence-based wealth advisory services for high-net-worth households and core asset management solutions for women and families nationwide with $80,000 or more in investible assets. 

An ardent financial literacy advocate for women, Manisha is the co-author of two critically acclaimed personal finance books: ON MY OWN TWO FEET: a modern girl’s guide to personal finance and GET FINANCIALLY NAKED: how to talk money with your honey. She is on Faculty at The Omega Institute and serves as a Financial Fellow at Wellesley College. Manisha is also a member of The Wall Street Journal’s Wealth Experts Panel, a member of the 2015 CNBC Financial Advisor’s Council, and wearing her financial educator’s hat serves as a part of TIAA-CREF’s Women’s Initiative. 

Manisha's financial advice has been featured in a wide range of national media outlets including CNN, PBS, NPR, The Today Show, Rachel Ray, The New York Times, The Boston Globe, The LA Times, Real Simple, Women’s Day, Glamour, Essence, and MORE magazine.

Prior to joining the Buckingham team, Manisha spent over twenty years working in financial services. On the institutional side she worked as an analyst, portfolio manager and client relations executive at SG Warburg, Atalanta/Sosnoff Capital, Fayez Sarofim & Co., and Sands Capital Management. After this she moved to the retail side and ran her own independent registered investment advisory firm, MoneyZen Wealth Management. 

Manisha earned her MBA from Harvard Business School in 1997, her BA from Wellesley College in 1992 and is a CFA charterholder. She lives in Portland, OR where she delights in the amazing Third Wave coffee scene and stunning natural beauty of the Pacific NorthWest. Manisha’s website is MoneyZen.com.