Commit investment goals to written form, including risk appetite, prior to investing money, recommends Walter E. Lagerquist in “Balancing and Hedging an Investment Plan.” (2012)
Investments like government bonds of high-credit sovereign nations are considered low risk investments, yet recent events demonstrate that countries, like corporations, experience credit downgrades with the world’s largest credit rating organizations, reports the International Monetary Fund in “Global Financial Stability Report, April 2012.”
For this reason, investors around the world consider credit a most important determinant prior to committing capital. Investing in stocks (common), preferred shares and mutual funds requires attention to credit quality.
Funds invested in stocks and bonds is subject to market risk. Prices of these financial instruments rise and fall with market demand.
For individuals in need of ready capital, no doc loans can help. Unlike traditional banks and lenders, no doc loans offer a streamlined process. A network of short-term lenders funds client requests according to lender terms and conditions.
Those with capital to lend, within a network of short-term capital providers, seek a higher than market rate of return. For investors with a desire to earn higher than market yields, lending money via no doc loans is worthy of consideration.
Low interest rates. Historically low interest rate levels around the globe make government bonds and demand deposits less rewarding than before. Standish Mellon Advisors (“The Case for Global Fixed Income,” October 2009)reports that U.S. Treasury bonds returned an average 7 plus percent per year between the years of 1990 and 2009.
“Safe” capital invested in government-backed financial products offers less attractive interest rates today. Real risks of inflation and country credit risk draw investors to better solutions.
Bonds. Investors ask why many bonds yield such low coupon rates. For example, a $100,000 investment in a bond paying a 1.5 percent coupon pays the investor a mere $1,500 per annum. A low coupon usually indicates a short-term maturity date, but not always: in this example, the bond matures in 2042! Switzerland’s annual inflation rate averaged 2.7 plus percent from 1956 to 2012.
Bonds and foreign exchange rates. Real negative rates on securities instruments denoted in today’s strongest currencies could be potentially profitable if betting against the euro. If the euro fails, negative rates are less important: the instrument becomes a quasi option for purchase of the Swiss Franc (perceived as a strong currency). If the euro survives, traders might regret risking large amounts of capital in a bold strategy, predicts James Rickards, author of “Currency Wars: The Making of the Next Global Crisis.” (2011)
Low yields plague investors. Low coupon rates and negative rates concern investors. Many investors are reluctant to expose large amounts of capital to the stock markets. They prefer keeping “safe money” in yield instruments. Identifying ways to earn steadily concerns many wealthy investors. Funding no doc loans can generate a reliable, higher than market rate of return. Individuals in need of cash today must submit to the terms and conditions of the lender. A lender has the right to approve or decline a no doc loan.
Causes of negative yields. Currency risk is a big concern to investors and traders. On investigation of the market dynamics, investment managers say today’s very low rates, economic conditions and global economics combine to present new risks. Investment managers report that negative yields result from a country’s currency appreciation.
Currency appreciation risk. Currency appreciation shows why some short-term government paper has gone negative: for example, Switzerland’s two-year bond yields a negative (0.40)! Switzerland’s central bank placed a SFr1.2 top rate against the euro and funds poured into Swiss francs as a result. Considered a safety net during today’s Eurozone stress, investors consider worst-case scenarios. What happens to the price of a long-term negative-yield bond if the euro currency continues?
Eurozone comparisons. Germany’s short-term paper mirrors Swiss bonds. France sold negative yield instruments for the first time last July. Given current financial conditions, institutions and pensions won’t go long and focus on short-term liquidity.
Opportunities in no doc loans. Whether an individual needs short-term cash or an investor desires a way to make a higher yield on capital, no doc loans demand attention.