Dear Stock Market Game Participants:

     While many college basketball brackets were busted over the weekend, much of the East Coast was able to enjoy Sunday's official start to Spring with some warm(er) weather. Green grass and warmer temps still seem to be far in the distance, but as the old adage goes if March comes in like a lion, it will go out like a lamb. The markets also had a sunnier disposition ending in the green last week, but it didn't last long as each of the major indices erased last week's gains Monday morning.

     For you SMG Peloton investors (or you other teams in the red), you could use a bit of stability. It may be a good time to review the subject of bonds. Generally, when the stock market is on a roller-coaster ride (or when a correction seems inevitable), bonds can help steady a portfolio because they tend to be a safe investment tool to help balance the overall risk in a portfolio. In essence, bonds are loans investors make to the issuers in return for the promise of being paid interest, usually but not always at a fixed rate, over the loan term. The issuer also promises to repay the loan principal at maturity, on time and in full. 

     While all bonds share basic characteristics such as terms, rates, and par values (the face value, or named value of the bond – usually $1,000), they are not all alike. One of the major differences is that they’re issued or sold by four distinct entities in the US. Corporations issue bonds to raise money for expansion, research and development, and other expenses of doing business. While corporations can also raise money by selling new stocks, they may prefer bonds because the existing stocks lose value when new stocks are issued. Municipal governments, such as states and cities, sell bonds called “munis” to fund projects for the public good like building bridges, sewers, roads, and schools. The U.S. Treasury also issues bonds to meet its regular and unusual obligations. And finally, government agencies issue bonds to raise money to do their work, such as provide mortgages and student loans.

     Yield refers to the return the investor earns. The simplest version of yield is calculated by using the following formula: yield = annual interest (or coupon amount)/price. When an investor buys a bond at par value, yield is equal to the interest rate. When the price changes, so does the yield. The relationship of yield to price can be summarized as follows: when price goes up, yield goes down and vice versa. Technically, you'd say the bond's price and its yield are inversely related.

     And be sure to check out our Asset Allocation: Bonds & Beyond and Entering Bond Trades videos - part of our SMG Essentials video series.

     Also -- now's the time to InvestWrite!

     As some SMG sessions have passed their half-way mark, students in the red may be looking for another opportunity to “get back in the game”. InvestWrite is the perfect chance for you to review some of your investment choices and apply them to a real world writing prompt (the prizes are pretty awesome too!).

     Have a great week ahead!

Best regards,

Elizabeth Reidel

National Director

SIFMA Foundation

[email protected]