Glen Rauch leads Rauch Financial Services of Lighthouse Wealth Management. He has been on Wall Street for more than 45 years, and he was the President and CEO of Glen Rauch Securities for more than 20 years. First and foremost, Glen believes his clients are the company’s most important asset, and he is now able to further commit to that belief through a working relationship with Caleb Lowman and Lighthouse Wealth Management.
Glen brings an institutional investor’s point-of-view to the everyday investor, providing clients with advice that's shaped from our team's combined 75 years of experience in the institutional equity and fixed income markets.
When creating individual and institutional portfolios, Glen uniquely positions those portfolios to the requirements of the person or company – thus, no two portfolios are exactly the same. His expertise has allowed for him to manage investments for a variety of entities, from well-known professional athletes to people in the entertainment world to doctors, lawyers, and business owners.
Glen and his team put the well-being of their clients at the highest level in their hierarchy of investment objectives, and it bears repeating that they believe their clientele are the single greatest asset to their business. With all the resources of Wells Fargo Advisors Financial Network and its affiliates, Rauch Financial Services has access to some of the top money managers in the industry.
Simply put, bonds amount to debt with a promise to pay. Whether we’re talking about the various types (individual bonds vs. bond funds and/or short-term vs. long-term), the quality (credit and credit rating), or the timeline/maturity range, there’s a lot to consider.
Speaking in generalities, low-quality bonds with long maturity are the highest yielding bonds. Conversely, high-quality bonds with short maturities are the lowest yielding bonds.
Ideally, you’d want to build a quality portfolio over your given time horizon. For example, with an initial investment of $500,000, you could build a portfolio of bonds in $25,000 increments and have $25,000 maturing every four months for the next six years. This strategy, called Bond Laddering, is intended to significantly reduce the risk of rising interest rates. By having $25,000 bonds mature every six months, extending maturities and, theoreticaly, increasing yields, you could further address timeline and risk concerns.
To illustrate how bonds trade in comparison to a current market interest rate, we can examine a hypothetical situation with three bonds. If the current market interest rate was 3% for a one-year bond with a given credit quality of AAA, then other bonds with the same maturity and credit rating – but different coupons – could trade at par, at a premium, or at a discount. Understanding the difference in current coupon vs. yield to maturity can be an important distinction for investors.
|$1,000 Bond||3% Interest Rate (Coupon)||1-Year Yield: 3%||Price: 100|
|$1,000 Bond||2% Interest Rate (Coupon)||1-Year Bond Yield: 3% (2% + 1%)||Price: 99|
|$1,000 Bond||4% Interest Rate (Coupon)||1-Year Long Yield: 3% (4% - 1% Premium = 3%)||Price: 101|
A higher current coupon does not necessarily mean that a given bond is actually more desirable.
The other important feature of a bond is its current yield – i.e. what it’s paying you now for the dollars spent.
|3% Coupon Bond||Maturing in 10 Years||Price: 100||Current Yield: 3%|
|2% Coupon Bond||Maturing in 10 Years||Price: 91.40||Current Yield: 2.22%||Yield to Maturity 3%|
|4% Coupon Bond||Maturing in 10 Years||Price: 108.50||Current Yield: 3.69%||Yield to Maturity 3%|
Take the dollar price you pay and divide into the coupon or interest rate, and this will give you your current yield. This is because on premium bonds, you amortize the amount of the premium over the life of the bond.
Whether you want to sell or buy bonds, a professional’s experience should be a necessary component in helping guide you toward success. Get in touch with Rauch Financial Services to learn more.
This information is hypothetical and for discussion purposes only. It is not intended to represent any specific return, yield or investment. It is provided for illustrative purposes only and does not constitute a recommendation to invest in any particular fund or strategy and is not a promise of future performance, an estimate of actual returns or of the volatility any client portfolio may experience. Hypothetical results do not represent actual trading and do not reflect the impact of any fees, expenses or taxes applicable to an actual investment. Hypothetical and past performance are no guarantee of future results.
Bond laddering does not assure a profit or protect against a loss in a declining market.
Investments in fixed-income securities are subject to market, interest rate, credit and other risks. Bond prices fluctuate inversely to changes in interest rates. Therefore, a general rise in interest rates can result in the decline in the bond’s price. Credit risk is the risk that an issuer will default on payments of interest and/or principal. This risk is heightened in lower rated bonds. If sold prior to maturity, fixed income securities are subject to market risk. All fixed income investments may be worth less than their original cost upon redemption or maturity.
Duration is a measure used to determine a bond’s or bond portfolio’s sensitivity to movements in interest rates. Generally, the longer the duration the more sensitive a bond or bond portfolio is to changes in interest rates.