SmartInMoney: Securities

SECURITIES

Long Run Return of Stocks

Will stocks pay off in the long run? This question is the most relevant in the current market meltdown. Statistics show stocks have paid off in the past, but it all depends on how long you're willing to wait. Continue

Asset Classes for Portfolio Construction

When constructing your portfolio, you will want to consider variety of asset classes that match with your investment objective. An asset class is a collection of securities which possess similar characteristics, behave similarly in the market and are subject to the same laws and regulations. Read more

Money Market Instruments
A Saver Investment Alternative In Volatile Bear Market

U.S. stock markets are officially in bear market territory in this July 2008 with all three major indexes, the S&P 500, the Dow, and the Nasdaq, plunged from their peak in October 2007. When official bear market strikes, investors usually begin to dump stocks and seek refuge for their money to saver investment in money market instruments. Read more

Alternative Investment

Alternative investment is considered as an investment outside of the traditional asset classes of stocks, bonds and money market. Some examples of alternative investments include real estate, commodities, options and derivatives. These investments are often used by financial institutions, hedge funds, and producers that need to hedge against volatility risk of raw material. Continue reading

Derivative

Derivative is a contract that derives most of its value from some underlying asset, reference rate, or index. Derivative can be differentiated into several types, including commodity derivatives and financial derivatives.

A commodity derivative is a derivative contract specifying a commodity or commodity index as the underlying.

A financial derivative is a derivative contract specifying a financial instrument, interest rate, foreign exchange rate, or financial index as the underlying. Most common financial derivatives include forward contracts, futures, options, and swaps. Continue reading

Option

An option is a contract to buy or sell a specific amount of financial asset at a specific price, at which the contract may be exercised, or acted on. When an option expires, it no longer has value and no longer exists.

The financial asset of an option is officially known as the option's underlying instrument or underlying interest or underlying securities. It can be debt, stock, commodity, currency, or index. For equity options, the underlying instrument is a stock, stock index, exchange-traded fund (ETF), or similar product. Read more

Fixed Income Securities
A Relative Safety Investment For Rough Economy

U.S. economic prospects are so grim as shown by recent leading economic indicators. Investors will take shelter in the relative safety of the bond market during a painful economic period. Weaken earnings during the rough economic time will cause price-earnings multiples of stocks collapse triggering stock market sell off. Read more

Equities(Stocks)
Most Popular Investment for Long-Term Focus

Majority (75 percent) of U.S. individual investors are currently investing in domestic equities and 60percent in international equities. The figures are revealed on July 29, 2008 by Schroders, a global asset manager, on its semi-annual survey of U.S. individual investors. The survey also revealed that individual investors are continuing to build their portfolios and maintaining a long-term outlook with an investment time horizon of more than five years. Read more

Credit Default Swaps

Financial instruments called Credit Default Swaps (CDS) are derivative securities that have been getting more attention recently. They are widely used in the financial markets especially by bond insurers. Exposure to these securities is not limited only to bond insurers but also to investment banks and bond fund. Many largest bond funds have exposure to Credit Default Swaps. Read more

Interest Rate Swap

The most popular interest rate swaps are fixed-for-floating swaps, also called as vanilla interest rate swaps, which is an exchange of interest payments on a specific principal amount. It involves exchanging a fixed amount per payment period for a payment that is not fixed. The floating side of the swap would usually be linked to another interest rate, often a 3-month or 6-month LIBOR as its floating rate. In an interest rate swap, the principal amount is never exchanged; it is just a notional principal amount. Read more

Synthetic Collateralized Debt Obligation

Synthetic Collateralized Debt Obligation (Synthetic CDOs) that have become increasingly popular were first created in the late 1990s as a way for large holders of commercial loans to protect their balance sheets without actually selling the loans and potentially harming client relationships.

Collateralized Debt Obligation (CDO) is an investment-grade security backed by a pool of bonds, loans and other assets. CDOs do not specialize in one type of debt but are often non-mortgage loans or bonds. Continue reading

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