When it comes to investing in bonds, some of the basic concepts regarding bond risks tend to elude investors. Most understand the risks associated with stocks. If you invest in a stock, and its price increases, you make money, if it drops you lose. But bond risk has many different components. One of those risks is how the interest rate and maturity effect bond prices.

The maturity of a bond is the date on which the principal amount is repaid and the issuing organization returns your investment to you. You can buy bonds with maturities as short as one week or as long as one hundred years. Clearly the maturity (or maturities) you select should be aligned with your investment goals.

As a rule, most investors should consider bonds with maturities of 20 years or less. Many investors stagger the maturities of various bonds in a portfolio to create a “ladder structure”. This creates a blend of short-term and long-term maturities and interest rates.

If you hold a bond to maturity, assuming the bond you own is not in default, you will get back your initial investment. Between now and then, as interest rates fluctuate, the price of the bond will also fluctuate. That means the price of your bond will go up and down.

If interest rates rise, the current value of a bond will drop. If interest rates go down, the current value should rise. The relationship between interest rates and bond prices is inverse. The price of a short-term bond will fluctuate less than that of a long-term bond because the shorter the maturity, the sooner you will receive your principal back and the sooner you can reinvest at current rates. The shorter time frame reduces the risk that something can go wrong. Because there is less risk of price volatility with a short-term bond compared to a long-term bond, the interest rate should be lower on the shorter maturity. Shorter maturity, less risk, less interest. Longer maturity, more risk, higher interest rate.

What length of maturity should you buy if you think rates are going higher? The answer, shorter term maturities. The value of short term bonds is more stable in a rising interest rate environment. As rates rise, your portfolio will be more stable and you will have bonds maturing enabling you to reinvest at the current higher rate.

You can find more information about bonds and interest rate risks at www.livelongliverich.com and www.investinginbonds.com.

Explaining what can happen to the price of a bond is complicated and many factors go into the value of securities such as credit risk and trading environments. But as far as the relationship between rising interest rates and bonds are concerned, a picture speaks a 1000 words.

Retirement Professionals and those in the retirement planning stages feel John McCain will best represent retirees and the issues they face.

Marietta, GA: Torrid Technologies along with LiveLongLiveRich.com conducted the poll. Torrid-Tech, a software company in Atlanta that specializes in retirement planning tools, and Craig Rappaport, author of Live Long Live Rich-Creating Your Retirement Paycheck, conducted the poll to take the temperature of the retirement planning community.

The poll suggesting an overwhelming majority of retirement investment professionals and those involved in the retirement process choose John McCain as the presidential candidate that will best represent retirees by capturing 63.3 % of the vote compared with Obama with 22.5% with Clinton viewed as least likely to best represent retirees with 14.2% of respondents

“We were surprised to see such an overwhelming majority vote for John McCain. We really had no idea what to expect so to see one candidate receive such overwhelming support was quite a surprise” said Tim Turner the creator of Torrid Technologies’s Retirement Savings Planner Software.

The poll received 591 responses and has a 95% accuracy rate plus or minus 4 percent.

“Retirement Income and financial security are major issues facing not only those currently in retirement but those planning their retirement as well. The candidate that best articulates a policy appealing to this group will capture a huge demographic group of voters. For the moment, it is John McCain” said author Craig Rappaport.

“With medical expenses and the cost of fuel eating away at retirees budgets this group is getting squeezed and will respond to the candidate that speaks to the wallet when it comes to getting these costs under control.”

23 percent of the respondents were currently retired while 77 percent were not. Torrid Technologies plans to conduct another poll after the democratic presidential nominee is chosen to see which candidate is viewed as most likely to best represent the interests of retirees.

About Craig Rappaport
Author of Live Long Live Rich-Creating Your Retirement Paycheck.
For more information visit www.livelongliverich.com

Craig Rappaport
Author of Live Long Live Rich
610.812.5800
Rappaport@livelongliverich.com

WASHINGTON — U.S. consumer prices were under wraps last month, a government report showed, especially when food and energy prices were stripped out, further evidence that the economic slowdown is easing some of the inflationary effect of recent sharp gains in food and energy prices.

The data should ease concerns expressed by Federal Reserve officials in recent days about the inflation outlook. At a minimum, the consumer price data suggest inflation hasn’t become embedded in the economy, meaning officials can keep interest rates low in response to the slowing economy.

The consumer price index increased 0.2% in April, the Labor Department said Wednesday. Excluding food and energy, it advanced 0.1%. Wall Street economists had expected a 0.2% rise in both the headline and core indexes, according to a Dow Jones Newswires survey.

Unrounded, the CPI rose 0.207% last month. The core CPI advanced 0.104% unrounded.

Consumer prices rose 3.9% on a year-over-year basis, down slightly from the prior month. The core CPI grew a more modest 2.3% compared to April 2007. Over the past three months, core inflation rose at only a 1.2% annual rate.

The year-on-year core increase is slightly above the Fed’s presumed comfort zone of around 1.5% to 2%. The Fed’s preferred gauge, the core price index for personal consumption expenditures, is closer to that range at 2.1% annual growth through March.

The latest data should provide some relief to Fed officials that inflation isn’t gaining a strong foothold in the economy. Officials have for months focused monetary policy on housing and credit market turmoil, cutting the target fed funds rate at which banks lend to each other by 3.25 percentage points since September to 2%.

But in a statement accompanying last month’s decision to lower the fed funds rate by 0.25 percentage point, officials said “uncertainty” about inflation “remains high.” Economists took that language as an indication that officials are growing more worried about inflation and are unlikely to cut rates further.

Comments from several Fed officials Tuesday suggest inflation remains a top worry. Data on price pressures has been “disappointing” and on the “high side of where I would like it to be,” San Francisco Fed President Janet Yellen said in a speech. Kansas City Fed President Thomas Hoenig called inflation at “unacceptable levels.”

Yet the tame core CPI gain conforms to a scenario outlined by Minneapolis Fed President Gary Stern in an interview with the Wall Street Jouirnal and Dow Jones Newswires Tuesday. Food and energy-driven gains in headline inflation mean real incomes aren’t rising much, Stern explained, and “that has consequences for overall demand in the economy and that just tells you that lots of other prices aren’t likely to rise all that much.”

Energy prices were unchanged last month after jumping 1.9% on March, according to Wednesday’s report, though with oil prices hitting record highs this month, that will likely change in May. Gasoline prices fell 2% last month, but natural gas prices spiked 4.8%.

Food prices rose 0.9% on the month, the biggest rise since 1990, and 5.1% versus one year ago.

Medical care prices, meanwhile, increased a modest 0.2%, while clothing prices advanced 0.5%. Transportation prices fell 0.7% on the month, as airline fares and new vehicle prices both fell.

Housing, which accounts for 40% of the CPI index, was up 0.3%. Rent increased 0.3%. Owners’ equivalent rent advanced 0.2%.

In a separate report, the Labor Department said the average weekly earnings of U.S. workers, adjusted for inflation, fell 0.5% in April, suggesting incomes aren’t keeping pace with prices, which could weigh on consumer spending.

Average hourly earnings increased 0.1%, and average weekly hours were down 0.3.

NEW YORK — Americans’ nest eggs grew last year, but the market’s rocky performance ensured that they didn’t fatten as much as they had in the previous year.

Overall U.S. retirement assets rose by $1.1 trillion in 2007 to $17.6 trillion, according to the Washington, D.C.-based Investment Company Institute, which represents the mutual fund industry. The 7% increase, which reflects contributions and asset appreciation, lagged the growth in retirement assets from 2005 to 2006, when nest eggs grew by $1.7 trillion, a nearly 12% increase, according to the ICI.

The institute will release its 2008 Investment Company Fact Book, which offers a comprehensive look at the scope of the nation’s retirement market, on Thursday. The ICI combines its data on individual retirement accounts and defined-contribution plans with publicly available data on defined-benefit plans, government employees’ plans and annuities to produce the report, which is considered an important annual snapshot of the overall retirement market, and which will be incorporated into government data.

Investors placed about $176 billion into mutual funds through individual retirement accounts and defined-contribution plans in the first three quarters of 2007, more than they had invested by the same means in all of 2006, said Brian Reid, the ICI’s chief economist. So the lower year-over-year growth rate in nest eggs was largely due to last year’s poor market performance, he said.

But, he noted that “in a not particularly good year for the market, still there were enormous gains for retirement savings.” Retirement assets accounted for nearly 40% of U.S. households’ financial assets at the end of 2007, up from 39% in 2006, the ICI found. The $17.6 trillion invested in retirement assets at year-end 2007 compared with about $16.4 trillion at year-end 2006 and $14.6 trillion at year-end 2005.Often overlooked, said Reid, is the important role that individual retirement accounts and defined-contribution plans, including 401(k) accounts, play in helping Americans build wealth for retirement. The tremendous ability of such investment vehicles to help investors get ready for their retirement years can’t be overstated, he said.

Investors held $9.2 trillion in IRA and defined-contribution plans at year-end 2007, which accounted for about half of the entire retirement market, the ICI said. IRA assets rose 12% to $4.7 trillion, with $2.2 trillion of that invested in mutual funds.

Investors held $4.5 trillion in defined-contribution plans, up 8% from the previous year, with mutual funds accounting for $2.4 trillion of that, the ICI found. And $3 trillion was held in 401(k)s at the end of 2007, making them the most popular type of defined-contribution plan.

Lifecycle Funds Popular

Mutual funds managed $4.6 trillion by the end of 2007, or 26% of total retirement market assets, according to the Fact Book. The remaining $13 trillion were managed by pension funds, insurance companies and brokerage firms. That $4.6 trillion in retirement assets managed by mutual funds represents 38% of the $12 trillion managed by funds at year-end 2007, the ICI said.

Lifestyle funds, which are designed to meet risk preferences, and lifecycle funds, which rebalance allocations as investor age, continue to gain in popularity

“One of the reasons is that they provide a very convenient and easy way to get an asset allocation and to have that change over time in a way that’s understandable and intuitive,” said Reid. “They’re a wonderful, sort of one-stop shop for the investor.”

Net new cash flow into these funds reached a record $92 billion in 2007, the ICI said. Assets in lifecycle funds rose 61% to $183 billion, with 88% of those assets held in retirement accounts, according to the report. Assets in lifestyle funds reached $238 billion, of which 45% was held in retirement accounts, the according to the ICI.

Last year’s Fact Book for the first time included sections on closed-end and exchange-traded funds, and the 2008 Fact Book includes sections on each. ETF demand, from both retail and institutional investors, continued to be very strong in 2007, Reid said.

“If you look at mutual funds and ETFs together, they continued to take market share away from direct investment in stocks, bonds and other types of investment vehicles,” he said.

And investors continue to heed the advice of experts on the importance of fees. Assets in 401(k) plans are concentrated in lower-cost funds, the ICI found. For example, more than three-quarters of the 401(k) assets invested in stock funds are invested in funds with expense ratios of less than 1%, according to the 2008 Fact Book.

That’s nothing new, said Reid, noting that investors have been drawn to lower-cost funds since the early 1990s.