Easy Monetary Policy = Inflation?

Created on Sunday, 17 August 2014 19:00

One of the more persistent themes we’ve been hearing from forecasters, for quite some time now, is that the Federal Reserve’s easy monetary policy—starting with its move to drive the Federal Funds rate from 5.25 percent to zero—would inevitably lead to a dramatic spike in inflation.

As each new round of quantitative easing (QE) was announced, the chorus only grew louder. We’ve now had QE1, QE2 and QE3. As a result of those bond buying programs, the Fed’s balance sheet has more than quadrupled, from less than $1 trillion to more than $4 trillion.

Since it’s now been more than six years since the Fed first took action to address the financial crisis, I thought it would be worthwhile to take a look at how the many predictions of rampant inflation have played out.

Read the rest of the article on ETF.com.

What are the differences between a brokered CD and a bank CD?

Created on Monday, 11 August 2014 12:52

Q: What are the differences between a brokered CD and a bank CD?

A: A certificate of deposit is a type of bond that has a stated maturity and coupon payment. Most CDs offer a fixed interest rate, and maturities can range from one month to 30 years. CDs have insurance from the Federal Deposit Insurance Corporation (FDIC) up to $250,000, including principal and interest, per account title. The following is an overview of the differences between a bank CD and a brokered CD:

How rates are determined

Brokered CDs rates are market driven. They can be traded like other bonds. Bank CD rates are determined through an administered rate that may not reflect current market rates. When banks offer rates that are out of balance with competing institutions, this could signal that a bank needs funds to manage its assets and liabilities, or that it may be trying to attract new deposits. Thus, the bank may be willing to pay more than the current market rate to gain funds.

The liquidity and price risk

Bank CDs could incur a penalty if redeemed prior to maturity. There is no price fluctuation. Brokered CDs can be sold in the secondary market prior to maturity and fluctuate in value according to market rates. If rates are higher than the coupon rate, the CD could sell at less than par. If rates are lower, they could sell above par and trigger a tax event if held in a taxable account.

The convenience of brokered CDs

Brokered CDs can be bought from different issuers for the same account through the primary and secondary market to ensure FDIC coverage, and they can be held with a custodian. Bank CDs have to be bought and held through that specific institution. If dealing with more than $250,000, several accounts need to be opened at several banks.

Considerations before making an investment decision

Before deciding whether CDs are appropriate in your overall investment strategy, it is important to confirm 1) maturity, 2) rate and 3) any additional features, such as calls. An advisor can help you consider the different components of a CD. It is prudent to investigate any investment vehicle before including it in your portfolio, and CDs are no exception.

__________________________________________________________________________________________________

Copyright © 2014, The BAM ALLIANCE. This material and any opinions contained are derived from sources believed to be reliable, but its accuracy and the opinions based thereon are not guaranteed. The content of this publication is for general information only and is not intended to serve as specific financial, accounting or tax advice. To be distributed only by a Registered Investment Advisor firm. Information regarding references to third-party sites: Referenced third-party sites are not under our control, and we are not responsible for the contents of any linked site or any link contained in a linked site, or any changes or updates to such sites. Any link provided to you is only as a convenience, and the inclusion of any link does not imply our endorsement of the site.

When Competition Obscures Financial Goals

Created on Sunday, 10 August 2014 19:00

Years ago, a friend with an incredibly successful career as a sales representative shared a story about what she and her brother called their W-2 Derby. It’s exactly what it sounds like. At the end of each year, they’d pull out their W-2s and compare who had the higher income. There were even rules for what really counted as income, and there was a prize for the winner.

When she first told me about it, I was impressed. I like a good competition as much as anyone. After all, I played high school football 20 years ago, and I used to do CrossFit. I’ve even found a way to turn yoga into a competition to see who can stretch the farthest before something tears.

But the more I thought about it, the more it bothered me. The W-2 Derby had turned income, something that’s a means to an end, into the end itself. I wonder how many fewer vacation days they took or what other sacrifices they’d made to push their numbers higher for this competition. And for what? The prestige of winning a competition that doesn’t really matter?

Read the rest of the article on The New York Times.