"We focus on providing you with the most appropriate fixed income solutions based on your time frame and risk tolerance."
If you are retired or close to retirement, you realize that your retirement could last just as long as the career you left behind. It’s time to consider long-term income strategies.
Our advisors deliver sophisticated services for those who need income during a long retirement. Careful planning is essential to provide adequate income throughout retirement and to avoid outliving your assets.
Income Investments:
Cash Management Accounts
Capitol Securities Management offers cash management accounts at no cost, with no minimum balances required and free unlimited check writing privileges. All investment income is electronically credited the next business day into an interest-bearing money market account. Various types of money market accounts are available including general, tax-free, and government money market funds. These accounts pay competitive rates of return. All account activity and balances are integrated into your monthly statement.
ProCash Plus®
- An easy way to turn an ordinary investment account into a powerful asset and cash management tool
- A complete portfolio snapshot on one comprehensive statement
- Unlimited check writing, online bill payment capabilities, daily cash sweep, direct deposit, and automated voice-response service
- MasterCard® debit card, worldwide ATM access, cost basis offered through Portfolio Evaluation Service®, equity dividend reinvestment, and more features available at higher service levels
- SIPC and excess account protection
Portfolio Evaluation Service®
- Robust tools for helping you assess portfolios, quantify gains and losses, and see the impact of market conditions
- Streamlined record keeping
- Quarterly performance reports
Contact Capitol Securities Management today to see how we can help you better serve your cash management needs.
FDIC-Insured Solutions in an Uncertain World
Cash management strategies have never been more important to a well constructed portfolio than they are today. Volatility in the stock and bond markets has created the need for a portfolio stabilizer. This need is even more acute for investors at the front edge of the demographic wave of retiring baby boomers, whose needs are shifting from the long-term accumulation of capital to the preservation of capital for retirement and other objectives. Put another way—the return of capital has become more important for many investors than the return on their capital. As a result, for many investors, cash has gone from being a residual of the investment process to a core consideration.
Corporate Bonds
Corporate bonds are issued by corporations to help pay for expansion, equipment or operating expenses. Corporate bonds are a company's IOU for the money you're lending it by buying the bond. If a company were to file for bankruptcy, its bondholders would have priority over its stockholder when assets were liquidated. If a corporation's debt is considered investment-grade, the company can also issue medium-term notes through a process called shelf registration, which is less costly and permits greater flexibility when notes are issued. The interest on corporate bonds is taxable at ordinary income rates by federal, state and local governments.
Corporate bonds typically pay a fixed interest rate, and payments are usually made every six months. The corporate bond market is large and liquid with generally high trading volumes. The industrial sectors responsible for the bulk of corporate bonds are public utilities, transportation companies, industrial corporations, financial services companies, and conglomerates. Like stocks, bonds can be traded by brokers and bond dealers on the over-the-counter (OTC) market as well as the New York Stock Exchange (NYSE). The debt issues of major corporations are quoted and traded daily on the NYSE. Listed bonds are typically sold in $1,000 denominations; for OTC bonds, the minimum is usually $5,000
Municipal Bonds
For investors seeking a fixed rate of return and the stability offered by municipal securities, our municipal bond department carries a large inventory of high quality DC, Maryland, and Virginia bonds. The interest from these bonds is free from all federal taxes and often state and county taxes. Through CSM's state-of-the-art computer networking system, we are able to access the municipal bond inventories of dealers throughout in the country. This gives our clients a distinct advantage because we can usually find the best bonds at the best rates that adhere to any given set of investment criteria including bond yield, rating, maturity, state, registration type, and call provisions. If Capitol Securities Management does not have the municipal bonds in its inventory, we can find them.
Municipal bonds, or munis, have traditionally been most attractive for investors in high tax brackets. That’s because favorable tax treatment of municipal bonds can mean a higher return than bonds that pay taxable interest. Most states and local governments do not tax municipal bond interest from that state, though regulations vary from state to state. Also, interest from municipal bonds usually (but not always) is tax-exempt on your federal return. Whether it’s taxable or not depends on what the municipality or state is using the bond proceeds to fund. For example, taxable munis might fund local sports facilities, investor-led housing developments, and certain municipal refinancing strategies that the federal government deems not to provide a significant benefit to the public at large. Private activity bonds (also known as nonessential function bonds or private purpose bonds) are those in which 10 percent or more of the bond's benefit goes to private activities or 5 percent of the proceeds (or $5 million if less) are used for loans to parties other than government units. Generally, private activity bonds are taxable unless their use is specifically exempted from taxation. (For example, the American Recovery and Reinvestment Act of 2009 specifically exempts interest on private activity bonds issued in 2009 and 2010 from being included in calculations of the alternative minimum tax. Most private activity bonds are considered an item of tax preference and are therefore included when calculating AMT liability.)
Most municipal bonds and short-term notes are issued in denominations of $5,000 or multiples of $5,000. Bond interest typically is paid every six months; interest on notes is usually paid at maturity.
Treasury securities
The federal government borrows money in the same way corporations do. However, Treasury securities are very different from corporate bonds. Sold by the U.S. Department of the Treasury, they are backed by the full faith and credit of the U.S. government. For that reason, they’re considered relatively safe, since the government can always raise taxes to pay its debt. Treasury securities, are often used as benchmarks against which to measure other types of investments. Rates are set at regularly scheduled Treasury auctions. Treasury securities are issued in denominations that start at $100 and may be purchased in increments of $100 (though brokers may set higher minimum purchase requirements).
The most important Treasury securities for investors are:
Treasury Bills (T-bills)
These are relatively short-term securities, which are available in maturities that range from 4 to 52 weeks. The Treasury regularly holds auctions to sell T-bills and set the current interest rate to be paid on them. Treasury bills are bought from the Treasury at a discount to the bill’s face value and redeemed at the full face value. The difference between the discounted amount you pay when you buy a T-bill and the bill’s face value represents the interest you receive. For example, if you pay $97 when a $100 T-bill is auctioned, you would effectively receive $3 in interest when the bill matures and you are repaid the bill’s full $100 face value. The discount rate in this example is 3 percent. Money-market funds often invest in T-bills.
Treasury notes
The Treasury holds periodic auctions to sell various maturities that range from 2 to 10 years. Unlike T-bills, notes pay interest every six months until they mature. They are traded on the secondary market by investors who may or may not decide to hold them to maturity.
Treasury bonds
These are offered in 30-year maturities. They are often bought not only by individual investors but by institutional investors who have long-term financial obligations and need the relative safety that Treasuries offer.
Treasury Inflation-Protected Securities (TIPS)
For those investors seeking the stability of US backed obligations, Capitol Securities Management provides access to all current available offerings.
What factors should you consider before buying bonds?
As with any security, your bond holdings should be tailored to your unique situation. Your financial professional can help you understand your choices and which options might suit you best. Here is an introduction to some of the factors to consider when evaluating bonds.
Your income needs
If you’re investing in bonds primarily for current income, a bond’s coupon rate will set the amount of your payments. Think about whether you want to receive ongoing periodic income, or are willing to receive much of your return when the bond matures. Some bonds, such as zero-coupon bonds and U.S. savings bonds, pay interest only when the bond is redeemed. Remember that even if you don’t need the income to live on, interest from bonds may help moderate the volatility of your overall portfolio.
Your tax bracket
Tax considerations are especially important for some investors. Some bonds are tax-advantaged. If you’re in a high tax bracket, a bond whose interest is generally not taxable by the federal government, such as most municipal bonds, may be a better choice even though the interest rate it pays is lower than a comparable taxable bond. U.S. Treasury securities are generally exempt from income taxes imposed by state and local governments. Also, you’ll want to compare the tax you’ll pay on bonds compared to what you’d owe in taxes on corporate dividends. Qualifying dividends from corporate stock are taxed at the lower capital gains rates; interest from taxable bonds is taxed at ordinary income tax rates. Absent legislative action, after 2010, dividends will be taxed as ordinary income as they were prior to 2003.
Your time horizon
If you’re considering holding individual bonds rather than investing in a bond fund, you’ll want to think about how long you intend to hold each one. With individual bonds, you can tailor your maturity dates to when you’ll need the money for a specific goal, such as paying for college tuition. You also can sell the bond before it matures, but the price you receive for it may be more or less than the face value, which means you could lose part of your investment. Some bonds pay all interest at the end of the bond’s term when the principal is repaid.
Also, it’s important to know whether the bond is callable or not. If it is, the issuer can choose to redeem the bond before its maturity date, which means you might not get income for the full period you were counting on. To compensate you for that possibility, callable bonds typically pay a higher interest rate than non-callable bonds. Long-term bonds are especially likely to be callable before maturity.
A bond mutual fund has no specific time horizon, since the fund manager may buy and sell specific bonds at any given time.
When thinking about your time horizon, it’s important to consider the impact of inflation. Over time, the inflation rate will affect the value of most bonds and the interest they pay. As prices rise, each dollar buys less and less. Inflation can erode the buying power of both a bond’s fixed interest payments and of the principal that will be repaid when the bond matures. As a result, the value of the bond to other investors can drop over time. On the other hand, if deflation occurs, the buying power of your investment dollars is increased and your bond would therefore be more attractive to investors.
Of course, other factors can affect the price of your bond as well. However, because both the interest rate and the face value of the bond are fixed, inflation’s impact over time on the value of a bond investment can be greater than on asset classes such as stocks, which generally have more potential to grow in value over time. To help fight inflation, some bonds are designed to adjust both the principal and interest payments automatically based on changes in the Consumer Price Index.
Certificates of Deposit
Since reduced risk and a fixed rate of return are important to many of our clients, CSM searches the nation for the most competitive CDs in a range of maturities. All CDs are insured, subject to the $100,000 maximum at maturity.
Your Capitol Securities Management advisor can help you determine which fixed income solutions are right for you.
Content courtesy of Forefield Inc.
