subject: Understand How Bonds Are Rated and Their Default Rate to Attract Prospects and Referrals [print this page] Understand How Bonds Are Rated and Their Default Rate to Attract Prospects and Referrals
I am not picking on bonds. I feel they have their place and are great for any portfolio. If you review the bond section of this manual you can find basic information.
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The truth is that bonds have historically higher failure rates than people recognize and you and your client need to know that there is exposure to loss when investing in bonds. Oftentimes a bond failure doesn't actually mean the bond is worthless. It could simply mean a restructuring or a delay in an interest payment.
When a bond fails to make the interest payment the value of the bond (how much it could be sold for) will decrease. The rating of the bond by bond raters (Moody's) can also weaken and drop.
It is important to know how this could affect your prospects portfolio and it could strengthen the need for more safety and security that an annuity can provide.
This is basic information regarding bond defaults and failures by category:
*
* U.S. Treasury: no chance for default.
* Municipal bonds: investment grade bonds that have a very slight chance of default (one analysis showed less than 0.05% over a 30-year period).
* Corporate bonds: investment grade bonds have a higher risk, but are still low.
* Junk bonds: below investment grade and have much higher risk.
* Foreign bonds: may have a high risk.
* Unrated bonds: Highest risk of all.
The lower the rating the greater the chance of a bond default or failure.
Here are numerous sources for finding additional information about bonds:
* Moody's
* Standard and Pour's
* Bloomberg
* Bond Default Newsletter
My favorite is Moody's. They will supply a bond default list that has enormous information available to us and it is free. Just log on and go to the 'Watch List' and you will be amazed how many companies I know well are on this list.
Using This Information Is About Being Informed.
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