Question:
Where do you stand on corporate bonds? My adviser has suggested several for me. Would I be better in a corporate bond ETF? I was also told that ETFs are better options if you want to get exposure to a “riskier” asset class, so I was looking at IShares iBoxx Investment Grade Corporate Bond ETF.
Answer:
At Henssler Financial, we are not currently buying corporate bonds. Generally speaking, we only hold fixed-income securities to match spending needs. Even if we were, we prefer individual bonds to bond funds as it provides a known future cash flow unlike a bond mutual fund or ETF, whose price will fluctuate with market conditions, especially interest rates.
If you want fixed-income investments in your portfolio that are not part of your overall financial plan, then corporate bonds or bond funds may be OK to hold. Currently, the iShares iBoxx Investment Grade Corporate Bond ETF (NYSEARCA: LQD) has a duration longer than we recommend at 7.4 years, which means the price of your ETF will change 7.4% in contrast to the the change in interest rates. We recommend staying within five years maturity, which would give a shorter duration –about three to four years – depending on coupon payments. LQD’s quality is also four levels lower than we would recommend for liquidity at an average of A-. We have always recommended using higher quality AA rated bonds.
Lower quality and longer maturity bonds are fine for those wanting more yield. We prefer not to take risks in client accounts as their bond positions are held for specific spending needs.
Question:
Our son is getting divorced this year. His wife is leaving after seven years. We’re devastated for him. We want to give him some advice, but have no experience in this. What would be the biggest mistake someone can make concerning finances and divorce? And, how can our son avoid this mistake?
Answer:
One of the biggest mistakes one can make during a divorce is allowing your emotions to get involved in your decision making. Generally, one may be able to make smart financial decisions if you are able to remain rational. However, divorce is an emotionally charged time, which is why lawyers often recommend pulling in professionals to help. We believe it is well worth the cost to have a professional, like a Certified Divorce Financial Analyst™, review the division of assets.
While the lawyers are dealing with the legal aspects of the separation, a CDFA™ is looking at how the decisions you are agreeing to today will affect you five or 10 years down the road. For example, if you have a $150,000 home and a $150,000 401(k), one spouse taking the house and one spouse taking the 401(k) is not an equitable division. The home requires upkeep and maintenance that affects the value.
Question:
Level 3 Communications had a big day on Wednesday. What do you think of the company?
Answer:
Level 3 Communications, (NYSE: LVLT) is an integrated communication company providing IP, internet and telephone service. They have been around for a while, but unprofitable since at least 2003. The company beat earnings expectations in the fourth quarter of 2013 by 161%, which was the catalyst driving the stock 10% higher on Wednesday. The company has a new CEO who has made efforts to grow earnings and cut costs. The effort seems to be working and he should be commended.
However, we recommend avoiding the stock because of the unattractive industry and their price looks too expensive given their recent appreciation. The company has no price-to-earnings ratio as only two of the last four quarters had positive earnings. Their price-to-sales ratio, which is the only ratio worth looking at for this traditionally unprofitable company, is currently 1.3, almost twice its five-year average of 0.68.
Question:
I’ve listened to you for years. I’m interested in both your financial and personal opinions: Should I buy travel insurance?
Answer:
Trip cancellation or interruption insurance protects you if your trip is canceled or interrupted because of some unforeseen event, such as the financial failure of the cruise line, airline, or travel agency; bad weather; illness; or death.
Temporary health policies provide short-term supplemental health insurance coverage. This type of coverage may be helpful when you’re traveling abroad, since some health insurance providers do not cover you while traveling overseas, or they may provide only limited coverage.
Baggage insurance reimburses you if your personal belongings are permanently or temporarily lost, stolen, or damaged while you are traveling.
Accidental death and dismemberment (AD&D) insurance compensates you if you lose a limb or an eye, or compensates your beneficiary if you die in an accident. You can purchase this coverage as a separate policy, as a rider to an existing policy, or as part of a travel insurance policy.
You may want to consider purchasing some form of travel insurance if the financial benefit and peace of mind outweigh the premium cost. For instance, if your trip were canceled or the tour operator went out of business, could you afford to lose the money you paid for the trip? If you got sick while vacationing in a foreign country, would your health insurance cover you? If not, could you afford to pay for your medical expenses? If your luggage were lost, could you afford to purchase everything you would need to continue your trip?
Question:
Trinity Industries was a recent addition to my portfolio. What can you tell me about this stock? Is this one I should consider a long-term holding?
Answer:
Trinity Industries (NYSE: TRN) manufactures transportation, construction and industrial products, mainly rail cars and inland barges. Transportation is not a real attractive industry at this time. The company is expected to grow at 10% in the coming business cycle, but has only achieved 4.4% annualized growth in earnings over the past five years.
Without knowing what else you hold, it is hard to say, but we prefer one of the railroads to the rail hardware manufacturers. We recommend you consider this a short-term holding, and by that, we recommend you sell it! We suggest a railroad. CSX Corp. (NYSE: CSX) has a 12.5% expected growth; Norfolk Southern Corp, (NYSE: NSC) has expected growth of 14.5%, or C.H. Robinson Worldwide (NASDAQ: CHRW), who was crunched on a bad earnings report this week, but has better growth prospects than TRN.
At Henssler Financial we believe you should Live Ready, and that includes understanding your stock holdings. If you have questions regarding your investments, the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or email at experts@henssler.com.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
