April 5, 2019
THE WORLD OF INVESTING can seem so full of insider language you may wish you had an interpreter. Meet Nick Giorgi, an investment strategist at Bank of America Global Wealth & Investment Management.
We turned to Giorgi to explain three key terms useful to know in today’s markets. Then we paired each with a report in our CIO Educational Series. Read on—and don’t hesitate to reach out to an advisor if you have more questions or want to discuss your investment strategies.
“Simply put, bond ladders are investments in bonds that mature at regular intervals over a period of years,” says Giorgi. “To build a $100,000, 10-year bond ladder, you might purchase $10,000 worth of bonds that mature in one year, another $10,000 with a two-year maturity, $10,000 for a three-year maturity, and so on. Each year is like a rung on a ladder. Whenever one set of bonds matures, you can choose to reinvest the proceeds in another 10-year bond. That way, you reduce the interest rate risk of holding the bonds.
How knowing this helps: Whether interest rates go up or down, your additional purchase will be at the new prevailing rates. This way, you’re not locking yourself into either short- or long-term interest rates, which can be particularly helpful now, when there’s a lot of uncertainty about where rates are headed.”
To learn more about bond terms and strategies, see “Learning the Curve.”
“It’s the price you originally paid for a security—such as a stock or bond. You need the cost basis to determine how much you’ve gained or lost,” says Giorgi.
How knowing this helps: "The cost basis is used to calculate capital gains or losses when a security is sold, and it can be a potential source of tax savings when you decide to sell an investment at a loss, thereby offsetting gains in other investments. This can be especially useful now, because the current long-running bull market has left many investors with appreciated assets in their portfolios,” Giorgi says.
For more about capital gains and losses, check out “The Capital Gains Dilemma.”
“This term is used mostly when talking about mutual funds or exchange traded funds (ETFs). You arrive at the NAV by subtracting the value of the fund’s liabilities from the total value of its assets. The result is usually expressed as an amount per share,” explains Giorgi. Most mutual funds and ETFs are bought and sold at the NAV price.
How knowing this helps: Sometimes ETFs or closed-end funds will trade slightly above or below their NAV. “You might pay more than the NAV if you think the fund could do better than that price, or less if you think you’re getting a good deal. In either case, you’ll be aware you’re taking on a bit of extra risk.”
For more about how net asset value may factor into your investing decisions, read “Are You ETF Sticker-Shocked? Don’t Be.”
Our financial advisors are committed to putting your investing needs, wants and priorities first. Here’s how you can get started with an advisor.
Then we can provide you with relevant answers.Get started