Bond Summary Points. There points are meant to only be a partial piece of the information puzzle. Please refer to the first part of the manual and there is tons of info on the internet. Try and learn all you can and use these points only as basic information.
· Bonds are guaranteed by the issuer of the bond
· Annuities are guaranteed by the insurance company and each individual state. In the modern history of annuities (90 years) not one penny has been lost in an annuity. This includes the Great Depression.
· The daily redeemable value of a bond changes constantly, what if money is needed for illness, other needs or death, the bond will only guarantee the face value at maturity and that could be 30 years.
· Annuities always have the face value available. (options available)
Municipal Bond Failure
· Municipal bonds do fail, current failure rates for the past 10 years has been%% of bonds issued
Municipal Bond Taxation
· Income on yield of municipal bonds is not federally or state taxed but … the income counts against the taxable limits on social security!
High Yield Bond? High Risk?
· High Yield Bonds are corporate issued bonds. The higher the yield generally means the higher risk. Moody's will disclose ratings and Morningstar will show the bond rating of bonds in mutual funds. Look and be informed. What is the real yield if a bond were to fail in a mutual fund?
Bond Funds to Annuities, an Easy Move.
· Look at the mix of ratings and risk / reward. If the money is important and needs to always be there then bond funds can not guarantee it. A very easy move when you show the fees that are being charged in the fund as well as the generated yields after the fees.
Debentures and Notes
· Debentures and notes are the lowest form of corporate safety; they are guaranteed by the good name of the issuer and are always LAST in a liquidation situation. Download the prospectus and show your prospect the risk disclosed.
Callable Bonds Let Them Screw You!
· Bond issuers can change the rules if it fits them! If interest becomes more favorable for the bond issuer (they go down) the bonds will be called and reissued at a lower rate. If interest rates are higher then the bond issuer will not call them and the bond holder will get lower interest than is available from other new bonds. If the bond holder wants higher rates they will have to sell the bonds at a discount and suffer a loss. (plus commission to sell)
Bond Strategy in an Annuity … YIKES
· The only time this would ever be considered if we have a time record of decreasing interest rates and the best estimate is that they will continue to decrease for at least a year. Very difficult decision and I say avoid and use the fixed rate instead. If you find an annuity with a bond strategy today, the account will have lost value. Good sales opportunity.
Bond Ratings sell Annuities.
· Let Morningstar, Standard and Poor's or Moody's make this sale for you.
The Prospectus, a GOLD MINE.
· Use the issuer's prospectus to distribute risk and reward. Any prospectus can be downloaded from the internet, free and easy.
How can Bond Yield be ZERO?
· Easy, buy a bond in the secondary market and pay a premium. Calculate the yield to call and the yield to maturity. Formula is enclosed or more fun can be had by having your client call the broker and have the broker do the calculation.
Premium, Discount and Annuity Sales!
· If a bond is sold at premium it means the prospect paid higher than issue price and so the yield will be lower than the original interest rates. So move the funds to an annuity if safety and security is important.
· If a bond is purchased at a discount then the owner will receive a higher than the issued interest rate. Explain that when interest rates begin to increase the profit they have made will evaporate. Sell the bond, take profit and move to a guaranteed product. Bonds are our Best Source of Annuity Revenue, Why?
· The value of bonds will change every second of every minute of every hour of every day.
· Annuities can only increase.
· If safety and security is important well … you can figure that out.