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Power Checklist

  • In low-interest-rate environments, stocks typically do well and bonds typically lag because of the lower interest rates.

  • People buy bonds for three fundamental reasons: income, safety, and tax advantages.

  • The interest rate yields on corporate bonds are higher than on government bonds or municipal bonds because they carry more of a credit risk and because the interest is taxable.

  • Junk bonds may have a place in your portfolio if you're willing to take the additional risk of principal to get a better rate of return on your investment.

  • The major draw for municipal bonds is that the income they generate is tax free.

  • Although zero coupon bonds are purchased at a discount, you'll pay taxes on the interest each year you own them as if you had just received the interest. Your best bet would be to keep these in a qualified retirement plan where you won't have to pay current taxes.

  • A convertible bond is one that has two personalities; it looks like a bond, but it can also become an equity.

  • Perhaps the biggest downside to bonds is that they provide no protection from inflation.

  • With the introduction of Treasury Inflation-Protected Securities (TIPS), you gain the advantage of a government-issued note with inflation protection.


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