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By Cory Bowman
Preparing for retirement is a stressful job in itself. Planning for future costs and expenses can seem overwhelming and complicated for the average employee. Experts are needed to help those in need build their retirement portfolio. Those who achieve retirement certificates from a retirement institute will have the knowledge and skill sets necessary to help a multitude of clients. Certification will also distinguish one from his or her peers by enhancing career growth and professionalism. A client portfolio can include many types of investments, but many focus on bonds, specifically Treasurys issued by the government.
Retirees frequently use Treasurys as part of a conservative portfolio. However, many investors fail to realize that things backed by the government can actually accumulate a negative profit. Those with retirement certificates understand the uncertainty of stocks, but, for some reason, think the value of their government securities is unwavering and secure. Aside from interest payments, quality bonds post negative returns about once every 3 years. History shows that owning Treasurys can in fact be risky. For example, in 2003, the 10-year Treasury yield jumped one percentage point in just two months, causing an 8.2% loss in the 10-year Treasury and a 13.3% drop in the 30-year bond. Federal Chairperson Paul Volcker raised the federal funds rate to as high as 22.4% in July 1982; yields on 10-year Treasurys went from 8.8% to 15.8%. If a 10-year Treasury yields 4% and rates increase a full percentage point, the loss would be 7%, 10% for the 30-year Treasury.
So why invest in Treasurys or any other bonds? Bonds play three important roles in a portfolio. Firstly, they provide a fixed stream of income, which can be saved up to use during retirement. Secondly, bonds offer return of capital when held until maturity. This works well for retirement portfolios, as the time periods are often much longer in comparison to those of portfolios intended for other end goals. Corporate bonds are not completely without risk, so those in a retirement institute are trained to monitor the fiscal health of the issuer. Lastly, bonds have historically had low correlations with stocks. Therefore, even in the current low-yield environment, bonds should not be ignored. Investors are normally attracted to bond funds for safety, income or as a diversification tool. The price of a bond often changes; a government bond’s price movements over a day, week or month are much smaller than the price change of a stock category or index.
In preparation for retirement, many people look for the option that comes with guaranteed profit. However, all investments come with risk associated. Treasury bonds, though backed by the government, can also result in a negative dollar amount. Retirement specialists must make it completely aware to their clients that a large profit can never be fully promised. Bonds involve less risk than stocks, but the average returns from bond investments have also been historically lower, if more stable, than average stock market returns. With retirement certificates, investors are fully capable of giving clients the best financial advice on their retirement portfolios, leading to a quicker retirement!
About the Author: Cory Bowman is Director of Ops at the Institute of Business Finance. IBF has helped thousands of members of the financial services industry attain designations. For more information about
retirement institute
,
retirement certificates
, visit http://www.icfs.com
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