Editor’s Note: from http://beginnersinvest.about.com
Have you ever asked yourself, what is a bond coupon? This term is from more than a century ago when bonds actually came as physical engraved certificates. Although it’s not used any more, but the origin of the term bond coupon is interesting.
Burton Malkiel, famed author of A Random Walk Down Wall Street and respected Ivy League educator has said that a good rule of thumb for investors to use in order to determine the percentage of their assets that should be invested in bonds is to simply look at their birth certificate. A 30 year old? 30% bond allocation. A 60 year old? 60% bond allocation.
Long Term Treasury Bond Yields vs. Earnings Yields
It is possible to use the risk premium – that is, the spread between long term bond yields and earnings yields – to guage the relative value of the stock market. This risk premium is important because long term bond yields on United States Treasury bonds is considered the risk-free interest rate.
Understanding Bond Duration
Bond duration is one of the single most important metrics that any investor with a fixed income portfolio should know and live by at all times. If you build a collection of bonds that have too long a duration, you could experience losses as severe as the stock market.
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