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Joe Jaspers, CFP®
Vice President, Wealth Management
Carolinas Telco Capital Advisors
Located at Carolinas Telco FCU
9813 South Blvd, Suite 101
Charlotte, NC 28273
Phone: 704-391-5600
Toll Free: 800-622-5305, ext. 2608
Fax: 704-556-1652
Email: joe.jaspers@lpl.com
November/December 2019
Understanding Fixed Income Yield
Investors who own shares of fixed income or bond mutual funds* do so for their relative safety compared to equities and for an expected rate of return, or yield. Because economic conditions affect yield, it can vary from one market cycle to the next. Here’s what you need to know if you are or will soon become an income investor.
The Certainties
When you buy U.S. Treasury securities directly, their rates are guaranteed by the full faith and financial strength of the United States government as long as you hold them until maturity. Other types of fixed income securities will also pay you a predetermined rate of return when you hold them until maturity, although lacking the ironclad guarantee of Treasury securities.Just as with equities, the higher return promised by issuers of bonds, bills and notes, the more risk buyers will assume. In this case, it’s interest rate risk. This holds true whether you buy bonds issued by county and state entities, or you buy those issued by corporations.
The Misconceptions
Securities with longer maturity dates typically offer higher rates of return, but not always. In times of short-term economic uncertainty, two things can happen. One, the demand for certainty — such as in 10-year U.S. Treasury bonds — becomes greater, pushing yields down. Meanwhile, economic uncertainty can push the yield on two-year bills up. When short-term yield surpasses long-term yield, you have an inverted yield curve. This curve will right itself as economic certainty returns.Remember that while direct ownership of Treasury securities offers certain guarantees, the same doesn’t hold true for mutual funds that include them.
*Investors should consider the investment objectives, risks and charges and expenses of the fund carefully before investing. Contact the issuing firm to obtain a prospectus which should be read carefully before investing or sending money. Because mutual fund values fluctuate, redeemed shares may be worth more or less than their original value. Past performance won’t guarantee future results. An investment in mutual funds may result in the loss of principal.
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Securities and advisory services are offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC). Insurance products are offered through LPL or its licensed affiliates. Carolinas Telco FCU and Carolinas Telco Capital Advisors are not registered as a broker/dealer or investment advisor. Registered representatives of LPL offer products and services using Carolinas Telco Capital Advisors, and may also be employees of Carolinas Telco FCU. These products and services are being offered through LPL or its affiliates, which are separate entities from and not affiliates of, Carolinas Telco FCU or Carolinas Telco Capital Advisors. Securities and insurance offered through LPL or its affiliates are:
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