Most mutual fund training programs often provide an overview of a variety of topics such as bond performance and how it relates to the current economic climate. Mutual fund certificate training may also cover things like retirement planning along with detailed examples to illustrate real-world application of these concepts. The following is a good resource about bonds, retirement, and growing your practice.

Bond Performance

As of April 2009, the U.S. bond market was valued at $30 trillion. The returns fixed-income securities enjoyed during the 1980s, 1990s and up through 2004 were partially due to a falling interest rate environment. As an example, the prime interest rate peaked briefly at 21.5% during the first half of 1981 and pretty much fell from there. Even in 2005-2010, interest rates were historically low.

Bondholder’s Total Return

Suppose you buy a 10% coupon bond at par, or $1,000. The investment pays annual interest and matures in 25 years. You hold it to maturity. Would you realize a 10% yield to maturity, also known as the true compound rate of return? The answer depends on what you do with the interest payments, which total $2,500 over the 25 years ($100 per year times 25). Here is an analysis of the case:

– If you spent your interest checks when received, your y-t-m (yield to maturity) would not even come close to 10%. It would be 5.1%.

– Instead, suppose you reinvested in a passbook account at 4%. You would accumulate $4,165 in interest, but your realized yield to maturity would be only 6.8%.

– To earn the full 10% y-t-m, you would have to reinvest each payment at 10%. The accumulated interest would amount to $9,835.

The track record of professional rate forecasters is mediocre at best. The smart strategy for most investors is simply to use bond funds to meet liquidity, preservation of capital, and income needs.

Target Retirement Funds

Sometimes referred to as life-cycle funds, target retirement mutual funds are being promoted as “one investment choice for a lifetime.” Each fund is identified with a specific retirement year, such as 2020 or 2025. As the target date approaches, the allocation becomes more conservative, favoring bonds and cash. After the target date passes, most of these funds either merge into a retirement income fund or adopt an allocation that preserves purchasing power. There are a number of problems with these types of funds.

First, the objectives of people with a similar target date can be quite different. Someone age 65 and in poor health may need more money each year. Second, most target funds are based on 10-year intervals instead of five. Third, some fund groups increase the expense ratios for these “fund of funds.” Fourth, a number of the “sub” funds have track records that are less than 10 years, making analysis somewhat limited. Fifth, some companies offer their best funds, others use a mix of some of their good and some of their not-so-good funds.

The Biggest Problems

The greatest concern about target retirement funds is that their allocations are all over the board. A major contributing factor to the wide allocation variances is how the fund describes “retirement.” A retirement fund’s objective could be an allocation policy until retirement or it could be for life expectancy. Obviously a fund that “tacks on” an additional 18-25 years to its time horizon is going to be much more equity oriented.

Things to Do

Your Practice: List the five investment and planning topics you know most about as well as five you would like to know more about.

Learn: Are you ready to take your practice to the next level? Research mutual fund certificate programs to find ones that are informative and useful. You can gain skills that you can apply immediately to your practice. Acquiring current mutual fund training is important so that you can help your clients and meet their needs.

Author Bio: Cory Bowman is Director of Ops at the Institute of Business Finance. IBF has helped thousands of members of the financial services industry attain designations. For more information about IBF, mutual fund certificate, mutual fund training, visit http://www.icfs.com

Category: Finances
Keywords: mutual fund certificate, mutual fund training