vania-janet/multiturn-rag-retrieval-data huggingface dataset:
"If you look at the definition of time value on Wikipedia, you may notice this line: Time value ""can be thought of as the price an investor is willing to pay for potential upside.""  https://en.wikipedia.org/wiki/Option_time_value You are right to think that the time value is increasing as the moneyness increases from deeply OTM to ATM. Once the moneyness crosses the strike price threshold, per wiki's interpretation, the upside potential decreases as the underlying price moves away from the strike price. Think it as if an option is already deep in the money, the chance of it getting further ITM is slim. Hence the willingness to pay for that chance (aka. the upside potential) decreases."
"Can anyone explain what each of them mean and how they're different from each other? When you ""buy to open"", you are purchasing an option and opening a new position. When you ""sell to open"", you are creating a brand new options contract and selling it. ""Covered"" means that you have assets in your account to satisfy the terms of the options contract. A ""covered call"" is a call option for which you own shares of the underlying stock that you will sell to the buyer at the option's strike price if he exercises the option. If you previously made a ""sell to open"" trade to create a new position, and you want to close the position, you can buy back the option. If you previously made a ""buy to open"" trade, you can ""sell to close"" which will sell back your option and close your position. In summary:"
"You're right, the asset allocation is one fundamental thing you want to get right in your portfolio. I agree 110%. If you really want to understand asset allocation, I suggest any and all of the following three books, all by the same author, William J. Bernstein. They are excellent – and yes I've read each. From a theory perspective, and being about asset allocation specifically, the Intelligent Asset Allocator is a good choice. Whereas, the next two books are more accessible and more complete, covering topics including investor psychology, history, financial products you can use to implement a strategy, etc. Got the time? Read them all. I finished reading his latest book, The Investor's Manifesto, two weeks ago. Here are some choice quotes from Chapter 3, ""The Nature of the Portfolio"", that address some of the points you've asked about. All emphasis below is mine. Page 74: The good news is [the asset allocation process] is not really that hard: The investor only makes two important decisions: Page 76: Rather, younger investors should own a higher portion of stocks because they have the ability to apply their regular savings to the markets at depressed prices. More precisely, young investors possess more ""human capital"" than financial capital; that is, their total future earnings dwarf their savings and investments. From a financial perspective, human capital looks like a bond whose coupons escalate with inflation.   Page 78: The most important asset allocation decision is the overall stock/bind mix; start with age = bond allocation rule of thumb. [i.e. because the younger you are, you already have bond-like income from anticipated employment earnings; the older you get, the less bond-like income you have in your future, so buy more bonds in your portfolio.] He also mentions adjusting that with respect to one's risk tolerance. If you can't take the ups-and-downs of the market, adjust the stock portion down (up to 20% less); if you can stomach the risk without a problem, adjust the stock portion up (up to 20% more).
"Learn something new every day... I found this interesting and thought I'd throw my 2c in. Good description (I hope) from Short Selling: What is Short Selling First, let's describe what short selling means when you purchase shares of stock. In purchasing stocks, you buy a piece of ownership in the company. You buy/sell stock to gain/sell ownership of a company. When an investor goes long on an investment, it means that he or she has bought a stock believing its price will rise in the future. Conversely, when an investor goes short, he or she is anticipating a decrease in share price. Short selling is the selling of a stock that the seller doesn't own. More specifically, a short sale is the sale of a security that isn't owned by the seller, but that is promised to be delivered.  Still with us? Here's the skinny: when you short sell a stock, your broker will lend it to you. The stock will come from the brokerage's own inventory, from another one of the firm's customers, or from another brokerage firm. The shares are sold and the proceeds are credited to your account. Sooner or later, you must ""close"" the short by buying back the same number of shares (called covering) and returning them to your broker. If the price drops, you can buy back the stock at the lower price and make a profit on the difference. If the price of the stock rises, you have to buy it back at the higher price, and you lose money. So what happened? The Plan The Reality Lesson I never understood what ""Shorting a stock"" meant until today. Seems a bit risky for my blood, but I would assume this is an extreme example of what can go wrong. This guy literally chose the wrong time to short a stock that was, in all visible aspects, on the decline.  How often does a Large Company or Individual buy stock on the decline... and send that stock soaring? How often does a stock go up 100% in 24 hours? 600%?  Another example is recently when Oprah bought 10% of Weight Watchers and caused the stock to soar %105 in 24 hours. You would have rued the day you shorted that stock - on that particular day - if you believed enough to ""gamble"" on it going down in price."
How is it possible that long term treasury bonds, which the government has never defaulted on, can hold more risk as an ETF then the stock market index? The risk from long-term bonds isn't that the government defaults, but that interest rates go up before you get paid, so investors want bonds issued more recently at higher interest rates, rather than your older bonds that pay at a lower rate (so the price for your bonds goes down). This is usually caused by higher inflation rates which reduce the value of the interest that you will be paid. Do you assume more risk investing in bond ETFs than you would investing in individual bonds? If you are choosing the right ETFs, there should be a lower amount of risk because the ETFs are taking care of the difficult work of buying a variety of bonds.  Are bond ETFs an appropriate investment vehicle for risk diversification? Yes, if you are investing in bonds, exchange traded funds are an appropriate way to buy them. The markets for ETFs are usually very liquid.
"Depends on your definition of ""secure"". The most ""secure"" investment from a preservation of principal point of view is a non-tradable, general obligation government bond. (Like a US or Canadian savings bond.) Why? There is no interest rate risk -- you can't lose money. The downside is that the rate is not so good. If you want returns and a reasonably high level of security, you need a diversified portfolio."
The safest place to put money is a mixture of cash, local municipal bond funds with average durations under two years and US Treasury bond funds with short durations.  Examples of good short term US municipal funds: I'm not an active investor in Australian securities, so I won't recommend anything specific. Because rates are so low right now, you want a short duration (ie. funds where the average bond matures in < 2 years) fund to protect against increased rates. The problem with safety is that you won't make any money. If your goal to grow the value of your investment while minimizing risk, you need to look at equities. The portfolios posted by justkt are a great place to start.
See the following information: http://www.bogleheads.org/wiki/Treasury_Inflation_Protected_Security You can buy individual bonds or you can purchase many of them together as a mutual fund or ETF. These bonds are designed to keep pace with inflation.  Buying individual inflation-protected US government bonds is about as safe as you can get in the investment world. The mutual fund or ETF approach exposes you to interest rate risk - the fund's value can (and sometimes does) drop. Its value can also increase if interest rates fall.
They are still considered relatively safe, as the issuer would need to default (usually this means they are in bankruptcy) in order for you not to be paid back. For example, German bonds have been considered safer than Greek bonds recently based on the underlying strength of the government. Unlike Cash Equivalents, these are not guaranteed against loss, which means that if the issuer defaults, you could lose up to 100% of your investment. Bonds have several new features you will need to consider. One is interest rate risk. One reason bonds perform better than cash equivalents is that you are taking on the risk that if interest rates rise, the fixed payments the bond promises will be worth less, and the face value of your bond will fall. While most bonds are still very Liquid, this means that if you need to sell the bond before it matures, you could lose money. As mentioned earlier, some bonds are riskier than others. Given that you are looking for a low-risk investment, you would want to select a bond that is considered ""invesment grade"" rather than a riskier ""junk"" bond. Debt investments are a good choice if you can afford to do without this money for a few years, and you want to balance safety with somewhat better returns than Cash Equivalents. Again though, I would not recommend investing in Debt until you have also built up a separate Emergency Fund. If you do choose to invest in bonds, I recommend that you diversify your risks by investing in a bond fund, rather than in just one company's or government's debt. This will reduce the likelihood that you will experience a catastrophic loss. Ownership Ownership assets includes stocks and other assets such as real estate and precious metals such as gold. While these investments can have high returns, in your situation I would strongly recommend that you not invest in these types of investments, for the following reasons: For these reasons, debt is considered a safer investment than equity for any particular company, government, or the market as a whole. Ownership assets are a good choice for people who have a high Risk Tolerance, long Time Horizon, low Liquidity needs, and will not be bothered by larger potential changes in the value of the investment at any given time.
There is no such animal. If you are looking to give up FDIC protection, investing in a short-term, high quality bond fund or a tax-free bond fund with short durations is a good way to balance safety vs. return. Make sure you buy funds -- buying individual bonds isn't appropriate for folks without a high net worth. Another option is savings bonds, but the yields on these is awful today.
First off, I do not recommend buying individual bonds yourself. Instead buy a bond fund (ETF or mutual fund). That way you get some diversification.  The risk-reward ratio will be evident in what you find to invest in. Junk bond funds pay the highest rates. Treasury bond funds pay the lowest. So you have to ask yourself how comfortable are you with risk?  Buy the funds that pay the highest rate but still let you sleep at night.
US government bonds and bonds issued by companies with a safe track record and consistently high ratings, for the past years, by credit agencies. But the time line of your investment, which is quite short, maybe a factor of choosing the right bonds. If you are not going to touch the money then CD maybe an option or an interest bearing savings account.
The safest investment is probably a money market fund [originally I said a TIPS fund but they appear to be riskier than I had thought].  But you might not want to invest everything there because the returns are not going to be great.  High returns come with high risk. The best portfolio has some percentage (which may be 0) of your money in a safe asset like a money market and some in a risky portfolio (this percentage may also be zero for some people).  You should consult your own risk aversion and decide how much money to put in each.  If you are super risk-averse, put almost all of it in the money market.  If you want a little more return, put more of it in the risky portfolio.  This is a fundamental result of finance theory. What's the risky asset?  A fully diversified portfolio of bonds and stocks.  People don't agree on exactly what the weights should be.  The rule of thumb back in the day was 60% stock and 40% bonds.  These days lots of financial planners recommend 120 minus your age in stock and the rest in bonds.  But no one really knows what the perfect weights in the risky portfolio should be (the rules of thumb I just gave have little or no theoretical foundation) so you have to choose for yourself what you think makes sense.
"Nobody has a ""crash proof"" portfolio -- you can make it ""crash resistant"". You protect against a crash by diversifying and not reacting out of fear when the markets are down. Be careful about focusing on the worst possible scenario (US default) vs. the more likely scenarios. Right now, many people think that inflation and interest rates are heading up -- so you should be making sure that your bond portfolio is mostly in short-duration bonds that are less sensitive to rate risk. Another risk is opportunity cost. Many people sold all of their equities in 2008/2009, and are sitting on lots of money in cash accounts. That money is ""safe"", but those investors lost the opportunity to recoup investments or grow -- to the tune of 25-40%."
You need to have a lot of money to play with direct bond investing safely. Trading bonds is not for amateurs, and the layman-friendly publications don't provide a lot of guidance. Unless you're prepared to hold a bond to maturity, the prices of even high quality bonds swing wildly.  If you need a source of income, but not necessarily the ability to make money trading the bonds, look at Savings Bonds (specifically I-Bonds).
Short-term to intermediate-term corporate bond funds are available. The bond fund vehicle helps manage the credit risk, while the short terms help manage inflation and interest rate risk. Corporate bond funds will have fewer Treasuries bonds than a general-purpose short-term bond fund: it sounds like you're interested in things further out along the risk curve than a 0.48% return on a 5-year bond, and thus don't care for the Treasuries. Corporate bonds are generally safer than stocks because, in bankruptcy, all your bondholders have to be paid in full before any equity-holders get a penny. Stocks are much more volatile, since they're essentially worth the value of their profits after paying all their debt, taxes, and other expenses.  As far as stocks are concerned, they're not very good for the short term at all. One of the stabler stock funds would be something like the Vanguard Equity Income Fund, and it cautions: This fund is designed to provide investors with an above-average level   of current income while offering exposure to the stock market. Since   the fund typically invests in companies that are dedicated to   consistently paying dividends, it may have a higher yield than other   Vanguard stock mutual funds. The fund’s emphasis on slower-growing,   higher-yielding companies can also mean that its total return may not   be as strong in a significant bull market. This income-focused fund   may be appropriate for investors who have a long-term investment goal   and a tolerance for stock market volatility. Even the large-cap stable companies can have their value fall dramatically in the short term. Look at its price chart; 2008 was brutal. Avoid stocks if you need to spend your money within a couple of years. Whatever you choose, read the prospectus to understand the risks.
I'm assuming you are buying bond mutual funds or bond etfs here, not the actual bonds directly. There are a significant variety of different types of bond funds, reflecting the sort of bonds they invest in. For example, you can invest in risky, non-commercial grade bonds, also known as junk bonds. Or you can invest in short-term bonds, which are much safer but return much less. There's no such thing as the 'average bond'. So, let's go for somewhere in the middle. Let's go for 3% return, after fees. Now, it's fairly simple math. You want $3,000 a month, or $36,000 a year. To generate that sort of return, you'd need to invest $1,200,000. If we are more optimistic, we could go for a 4% return, after fees. That reduces your investment to $900,000. Note that it would almost certainly not make sense to invest all that money in bonds. Instead, you'd want to invest in a mix of stocks and bonds. This could likely reduce your risk while increasing your expected return.
AAA bonds are safe, as far as the principal goes. If you buy long term bonds today (at very low rates) and the interest rate goes up to 10% in 5 years, the current value of the bonds will decrease. But if you hold the bonds till maturity, you will almost certainly (barring MBS scenarios) get the expected principal and interest on the bonds. If you decide to sell a long-term bond before it matures, it will probably be worth less than you paid for it if interest rates have risen since you bought it.
"In the quoted passage, the bonds are ""risky"" because you CAN lose money. Money markets can be insured by the FDIC, and thus are without risk in many instances.  In general, there are a few categories of risks that affect bonds. These include: The most obvious general risk with long-term bonds versus short-term bonds today is that rates are historically low."
Long-term bonds -- any bonds, really -- can be risky for two main reasons:  return on principal, or return of principal.  The former is a problem if interest rates are low (which they are now in the US) because existing bonds will fall in price if interest rates rise.  The second is a problem if the lender defaults: IOU nothing. No investment is riskless.  Short-term bonds command a lower interest rate than long-term bonds (usually) because of their quicker maturity, but short-term bonds carry risk just like long-term bonds (though the interest rate risk is lower, sometimes quite a bit lower, than for long-term bonds).
Bond aren't necessarily any safer than the stock market.  Ultimately, there is no such thing as a low risk mutual fund. You want something that will allow you get at your money relatively quickly. In other words, CDs (since you you can pick a definite time period for your money to be tied up), money market account or just a plain old savings account. Basically, you want to match inflation and have easy access to the money.  Any other returns on top of that are gravy, but don't fret too much about it. See also: Where can I park my rainy-day / emergency fund? Savings accounts don’t generate much interest. Where should I park my rainy-day / emergency fund?
Bonds provide protections against stock market crashes, diversity and returns as the other posters have said but the primary reason to invest in bonds is to receive relatively guaranteed income. By that I mean you receive regular payments as long as the debtor doesn't go bankrupt and stop paying. Even when this happens, bondholders are the first in line to get paid from the sale of the business's assets. This also makes them less risky. Stocks don't guarantee income and shareholders are last in line to get paid. When a stock goes to zero, you lose everything, where as a bondholder will get some face value redemption to the notes issue price and still keep all the previous income payments. In addition, you can use your bond income to buy more shares of stock and increase your gains there.
Totally depends on the drivers of the downturn. Keep in mind that in ~2005, both real estate and short-term bonds would arguably have been reasonable answers to this question (without the benefit of hindsight, of course).  e: After re-reading your post, it looks like you were asking about (I assume) equity investments by sector rather than asset classes more broadly. I'm not sure equity in any sector can be considered a safe haven in a downturn. Utilities are the typical answer, but they didn't do much better than equity markets in general in 2008-2009.
Bond MF/ETF comes in many flavour, one way to look at them is corporate, govt. (gilt/sovreign), money market (short term, overnight lending etc.), govt. backed bonds. The ETF/MFs that invest money in these are also different types. One way to evaluate an ETF/MF is to see where they invest your money. Corporate debts are by the highest coupon paying bonds, however, the chance of default is also greater, if you wish to invest in these, it is preferable to look at the ETF/MF's debt portfolio financial ratings (Moodies etc.). Govt. bonds are more stable and unless the govt. defaults (which happens more often than we would like to think), here also look for higher rating bonds portfolio that the fund/scheme carries. The govt. backed bonds are somewhat similar to sovreign bonds, however, these are issuesd by institutions which are backed by govt. (e.g. national railways, municipal bodies etc.), any fund/scheme that invests in these bonds could also be considered and similarly measured. The last are the short term money market related, which provides the least return but are very liquid. It is very difficult to answer how you should invest large sum on ETF/MFs that are bond oriented. However, from any investment perspective, it is better to spread your money. If I take your hypthetical case of 1M$, I would divide it into 100K$ pieces and invest in 10 different ETF/MF schemes of different flavour: Hope this helps.
A mutual fund that purchases bonds is a bond fund.     Bond funds are considered to be less risk than a traditional stock mutual fund.   The cost of this less risk is that they have earned (on average) less than mutual funds investing in stocks. Sometimes, bonds have different tax consequences than stocks.
"As Michael Pryor answered, a bond fund is a mutual fund that invests in bonds. I'd also consider an ETF based on bonds to be a bond fund, but I'm not sure that all investors would consider these as ""bond funds"". Not all bond funds are the same -- just like stock funds. You can classify bond funds based on the issuer of the bonds: You can also classify funds based on the time to maturity: In general, bond funds have lower risk and lower expected return than stock funds. Sometimes bond funds have price movements that are not tightly correlated to the price movements in the equity markets. This can make them a decent hedge against declines in your equity investments. See Michal Pryor's answer for some info on how you can get tax free treatment for your bond fund investments."
US Treasury securities are the safest investment. You can buy short term by buying T-Bills.  You buy T-bills at a discount to face. For example, to buy a four week T-bill the treasury will take $99.98 out of your account. In four weeks the treasury will deposit $100 into your account. The $0.02 difference is your Intrest on the loan. Compounded over a year (13 four week periods) you get a 0.24% interest. But (presumably) more importantly (to you) you get your original $99.98 back.  Your government cannot nationalize money that you have on loan to the United States Government.  Edit : oops, I dropped a decimal position in my original calculation of compounded rate of interest. It is now corrected.