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What is the S&P 500?
The S&P 500 (also known as the Standard & Poor's 500) is an index of the 500 largest and most important U.S. companies (selected by a special committee). The S&P 500 is a cap-weighted index, meaning the respective weights of companies in the index depends on market capitalization. For example, since Apple Inc. and Google are the biggest companies in the U.S., they affect movements in the S&P 500 more than a smaller company, like Visa. Continue reading...
A+/A1 — credit rating
A+ — S&P / Fitch A1 — Moody’s In the spectrum of ratings given to bonds and companies, A+/A1 is a very good rating to get, even if it is the 5th rating from the top. The Big Three ratings institutions, which are Fitch, Moody’s, and S&P, give ratings for creditworthiness after inspecting the books of companies who issue bonds. There are credit ratings given for companies and credit ratings given to bond issues. Continue reading...
AA+/Aa1 — credit rating
AA+ — S&P / Fitch Aa1 — Moody’s Major independent rating institutions such as Moody’s, Fitch, and Standard & Poor’s (S&P) can make or break a company or municipality’s ability to issue debt at a competitive yield. They rank companies and debt issues in terms of the risk of default. Ratings in the A range are considered Investment Grade, which is a rating mostly used by institutional investors. The interesting thing is that there are 7 kinds of A ratings, and they are different between the ratings institutions. We will not list them here, but charts that show the system are readily available online. Continue reading...
A-/A3 — credit rating
A- — S&P / Fitch A3 — Moody’s Rating institutions assign various levels of credit ratings to signify the chance of default; the A-/A3 rating is considered Investment Grade, but it is getting closer to the Junk Bond range. If a company or debt issue has a rating of A-/A3, it means that S&P and Fitch have given it an A- and Moody’s has given it an A3 rating. They have their own symbology for their ratings system but these are at the same level on both scales: these ratings are at the 6th or 7th degree from the top possible ratings, which is AAA/Aaa. Continue reading...
BB-/Ba3 — Credit Rating
BB- — S&P / Fitch Ba3 — Moody’s The BB-/Ba3 rating is given to bonds and companies who have a moderate risk of default, and this rating appears around the middle of a scale with over 20 ratings. There are two symbols in this example which are the same rating: Fitch and S&P use BB-, and Moody’s uses Ba3. These are the Big Three of the Credit Ratings Agencies (CRAs) that the SEC has sanctioned to issue ratings which can be used for internal regulation within industry groups. Continue reading...
B-/B3 — credit rating
B- — S&P / Fitch B3 — Moody’s In the world of junk bonds, a B3/B- rating is about as low of a rating as most investors will venture to explore. Bonds are rated by independent ratings institutions known as the Big Three: Moody’s, Fitch, and S&P. Two companies, S&P and Fitch, use the same symbols, and the B- in this example belongs to them. Moody’s has its own system, and the B3 in this example is theirs. Continue reading...
BB+/Ba1 — credit rating
BB+ — S&P / Fitch Ba1 — Moody’s This rating is the highest non-investment grade category that the ratings agencies will give to a bond. When rating bond issues based on their risk of default, investment grade bonds will range from AAA/Aaa to BBB-/Baa3, in the parlance of Fitch, Moody’s and S&P. Below this level, starting with the BB+/Ba1 rating, are High Yield Bonds, also known as Junk Bonds. If an investor chooses wisely, high yield bonds can be some of the best investments in his or her portfolio. The further down the ratings scale a bond appears, the higher the yield; but there is also a higher risk of default. The higher yield paid out on higher-risk bonds is known as the “risk premium,” which is a concept present throughout the investment world. Continue reading...
BB/Ba2 — credit rating
BB — S&P / Fitch Ba2 — Moody’s A bond rated BB/Ba2 is just below investment grade and is a somewhat speculative financial instrument. Fitch, Moody’s, and Standard & Poor’s (S&P) are the Big Three major credit ratings institutions. They each have proprietary formulas for assessing the financial strength and creditworthiness of companies, municipalities, insurers, and bond issues, The most common use of these ratings is for bonds, as investors seek to learn how likely it is that a bond will default on its payments. Continue reading...
A/A2 — credit rating
A — S&P / Fitch A2 — Moody’s Such ratings are given to bond issues and insurance companies, primarily, and this particular one is in the Upper Medium band of the Investment Grade ratings. Investment grade bonds are considered to have a very low possibility of default. The ratings go up to AAA/Aaa and all the way down to DDD/D, with Investment Grade bonds being in the range of AAA/Aaa to BBB-/Baa3. Continue reading...
AAA/Aaa — credit rating
AAA — S&P / Fitch Aaa — Moody’s AAA/Aaa rated bond issues have an almost nonexistent chance of defaulting, according to the major ratings institutions that issue the ratings. AAA/Aaa is the highest rating a bond issue or company can get. In the aftermath of the 2008 financial crisis and recession, many companies, and the US Government itself, were downgraded from AAA to AA+. Only two companies in the US still retain the AAA rating: Johnson & Johnson and Microsoft. Continue reading...
B+/B1 — credit rating
B+ — S&P / Fitch B1 — Moody’s B+/B1 is within the range of ratings given to High Yield Bonds, also known as Junk bonds. B+/B1 is the 14th rating rating from the top rating of AAA/Aaa in the scales used by the Big Three credit ratings institutions, which are Fitch, Moody’s and S&P. They evaluate the fundamentals of companies, municipal entities, and their bond contracts to determine how much risk of default is present. The limit for the category of Investment Grade bonds is BBB-, and there are a few categories of BB above B. Continue reading...
What is the Price to Sales Ratio (P/S Ratio)?
The Price to Sales Ratio, also known as the PSR, is a valuation metric that looks at a stock’s market price versus its per share revenue. Alternatively, you can calculate it by dividing a company’s total market capitalization by its total revenue in the most recent fiscal year. The ratio indicates how much value (how much investors are willing to pay) is placed on each dollar of revenue generated by the company. Continue reading...
What are SPDRs?
SPDRs (Spiders) are index ETF shares that track the S&P 500, or could refer to other similar ETFs tracking other indices. The SPDR is the longest standing ETF (exchange traded fund), and has existed since 1993. Unlike index mutual funds that track the S&P, ETFs can trade intraday, can be sold short, and bought on margin. There are other SPDR ETFs that are spin-offs, and using “SPDRs” in the plural might refer to these as well. SPDRs are managed by State Street Global Advisors, and the S&P 500 SPDR is listed on the NYSE under the ticker symbol SPY. Continue reading...
How Should I Invest my First Thousand Dollars Saved?
If you already have an emergency fund, you should put your $1,000 into a brokerage account and buy an ETF. Keep it simple – buy an ETF that corresponds to the S&P 500, and leave your money there for as long as possible. What Should My First Savings Vehicle Be? Should I Trust an Article Such as “Five Best Ways To Invest For Income?” Continue reading...
What is a market index?
Market indexes attempt to give an overall picture of the behavior of the market by tracking the performance of a representative sample of stocks. Different indexes have different focuses. The Russell 3000 samples more of the smaller companies than the S&P 500. Index mutual funds and ETFs track specific indexes but, as you’ll notice in their disclosures, it is impossible to invest directly in an index; they only follow the index by investing in as many of the companies as possible and minimizing lag as much as they can. Indexes give numerical values for the progressive fluctuations in the price action for specific sets of stocks. Continue reading...
What are the Risks Associated With Stocks?
Stocks are inherently risky, and an investor has risk of capital loss. As with most things in life, no risk yields no return. Theoretically, the greater the risk, the greater the potential return. A new company which has not established itself yet will have a decent chance of crashing and an investor can lose all invested capital. But — what if it takes off? Your potential gains in such a situation are potentially vast. There is a point when the rate of increased return per degree of risk begins to slow down. Continue reading...
How fast should my portfolio grow?
The assumed rate of return on an investment is an important consideration, especially since assuming a rate of return that is too high might cause the individual to under-invest. You should understand the difference between an assumed rate of return that is optimal and one that is going to give you the highest probability of reaching your goals. In a perfect world, your portfolio would average 15-20% per year, forever, but this is really not feasible. Continue reading...
What is a bear market?
Bear markets are loosely defined as periods when markets experience declines in magnitude of 20% or more. More specifically, bear markets are a period in which a major index like the S&P 500, for example, declines by 20% or more, with this decline sustained for a period over two months or so. Consequently, many investors become “bearish” – they lose confidence in the market, sell off their securities they do not believe will recover soon, and sit on the sidelines. There have been 25 bear markets since 1929, for an average of one every 3.4 years. Continue reading...
What is the VIX?
VIX is the ticker of the volatility index of the S&P 500. The Chicago Board Options Exchange (CBOE) Volatility Index projects the volatility of the S&P 500 going forward by creating a composite of the volatility priced-in (implied) on various S&P 500 options. Since it is created using the prices of options, it serves as a gauge of market sentiment, and is often called the "fear gauge" since it will spike when the market plunges. Continue reading...
What are some strategies for diversifying a portfolio?
There are many ways to diversify a portfolio, but all of them center around a strategy of owning different types of asset classes. For equity investors, perhaps the best strategy for diversifying a portfolio is to own companies from different sectors in different style categories, maybe even across the globe. The S&P 500 has ten different sectors, and a very broadly diversified portfolio should have exposure to each one in some capacity. Continue reading...