The sector selection is one of the most important performance drivers in a corporate bond portfolio. The overweighting and underweighting of different industries is a key element in a corporate bond strategy. The weighting of sectors in a corporate bond portfolio is the result of controlled deviations from the benchmark. They are based on the analysis of the operating environment of specific sectors, a bottom-up analysis of the respective companies and the risk-return profiles of bonds from a specific sector. It is advantageous to set up a corporate bond team by sectors because this structure allows an in-depth coverage of all sectors and the understanding of the competitive environment as well as the market positions and management strategies of single companies out of each sector. An industry consists of a group of firms which offer products that are close substitutes for each other.

Besides fundamental developments the risk appetite of investors is a driver of the spread differentials between various risk classes. Risk appetite in general describes the willingness of market participants to invest in risky assets as opposed to risk-free assets. Clearly, risk appetite is an unobservable factor but there are various indicators that are designed to extract a measure for risk appetite or risk aversion from market data. More details on this subject are provided later With respect to the performance of subordinated bonds versus senior bonds, there is an impact of risk appetite.

Spreads usually widen when risk appetite falls and tighten when risk appetite increases. From this chart there seems to be a lead–lag relationship between risk appetite and subsequent credit spread changes. If the leading character of risk appetite holds for the future it may provide valuable trading signals for subordinated financials.

Let’s say that you want to buy the example property we mentioned earlier. Remember, this property consists of two houses on one 5,197-square-foot lot, which were built in 1948. The mix has two one-bedroom houses that are in good condition. The owner wants $279,000 for this property. Is that a fair price? We’ll see. After checking with a few local brokers and appraisers, let’s further assume that you are able to locate three comparative sales (comps). We’ll call these comps Properties “X,” “Y,” and “Z.” Here’s what we know about those properties.

Property “X” also has two houses and looks like it may have been built by the same contractor as the property you want to buy. The difference is both units have two bedrooms each (the Lawndale duplex has one one-bedroom and one two-bedroom). Property “X” also has nicer landscaping. This property sold two months ago for $293,900.

Property “Y” is an attached duplex, was also built in 1948, and is the same size and condition as your property. The units have open parking instead of garages. This building sold a few months ago for $264,000.

Finally, Property “Z” is also just like the property you want except that it sold one year ago for $262,000. Because the sale occurred so long ago, it may be less relevant, albeit still important, to analyze, for there aren’t any other comps available.

It’s a question that comes up almost every time I sit down to help someone dig their way out of debt: should I wait until I’m out of debt to start saving toward retirement? Unfortunately, the answer doesn’t consist of a simple yes or no. Rather, the answer is probably a combination of “maybe” and “some.”

For the most part, we want to free up everything we can to get rid of our short-term debts before we dive headfirst into retirement planning. But there are four things you should be doing today, even if you are putting the majority of your free income toward paying down debt:

1. Take the 401(k) match. If your employer is willing to match your retirement plan contributions, I’d recommend contributing up to the point where they stop matching. Even if they only match you fifty cents for every dollar you contribute, that’s like getting a 50% interest rate on your savings in the first year.

2. Take the IRS match. Did you know Uncle Sam will also match you for saving money into a retirement plan or an IRA? The Retirement Savings Contribution Credit effectively gives you a bonus on your tax return in the form of a tax credit. This credit ranges anywhere from 10 to 50% of the amount contributed for unmarried wage earners who make under $26,000 ($52,000 for married filing jointly). Check out IRS Publication 590 for more details.

3. Buy your company’s stock. If your employer gives you an opportunity to buy shares of your company stock at a discount, this may be worth doing. Often, companies offer their employees a substantial discount on the current purchase price of their stock—sometimes as much as 15%. Additionally, the IRS may offer additional tax benefits in retirement to employees who invest a portion of their 401(k) or employer-sponsored plan assets in company stock. Of course, if you think your company’s stock is headed south, you’ll probably want to steer clear. Talk with your investment and tax advisor for more details.

4. Stay put at that good job. Do you have one of those increasingly rare jobs that promises to pay you a monthly pension when you retire? If you do, I’m jealous. Before you jump ship and go searching for greener pastures, find out how much longer you need to stay to lock in your future benefits. Another couple years at
the same desk may be a worthwhile trade-off for that monthly check at retirement.

So, for example, if you are 25 years old and want to accumulate $600,000 by age 65, you’d have to save about $175 per month (assuming 8% annual growth). Over your entire life of saving, this would translate into about $84,000 out of your pocket that grew to $600,000. Not too shabby.

But what if you wait until age 35 to start saving toward your $600,000? Then you’ll need to save about $410 per month, or more than double, to accumulate the same $600,000 at retirement. And even though you saved for retirement for 10 years less than the 25-year-old, you’ll end up dishing out about $147,000!

At age 45, your monthly savings number jumps to $1,000 per month that you’ll need to save for retirement,
or about $242,000 out of pocket. See the point? If you’re not saving toward retirement early, you will have to pay for it exponentially later.

If you are spending money instead of saving, whether it is going toward vacations or interest on your debts
and loans, there’s an opportunity cost. Getting your debts paid off as soon as possible means that you’ll be
able to put money toward these goals while they are still within reason.

You cannot beat a crook—even with a team of great lawyers, real estate agents, accountants, private detectives, and other professionals. Even if you successfully litigate, and you get what you think you are owed, the crooks will have taken something else somewhere else along the way, not to mention all the wasted time, effort, and energy that you put into dealing with these people in the first place, and then cleaning up the mess they precipitated.

There is only one solution: Deal with ethical people. You may not make money as fast, but it will last longer, and you will feel better about it.

One tremendous advantage of dealing with ethical people is that they tend to hang around with other ethical people. Your circle of acquaintances spirals into more and more enlightened levels of fairness, kindness, and awareness. Conversely, when you hang with rogues and rascals, your circle of acquaintances tends to spiral into depraved levels of increasingly severe cheating and deception.

Remember, you become the company you keep, so choose your friends and associates very carefully. John Baen is not only one of the most knowledgeable people I know concerning real estate, but he has a heart of gold. That is not to say he is weak— never confuse kindness for weakness.

Be firm about your expectations. Most disagreements come about because of a mismatch of expectations between two parties. Therefore, be aware of your own expectations and, equally important, discuss them with your associates. If you discover a chasm between your way of doing things and that of some associates, turn them into former associates. The world is too full of interesting, kind, knowledgeable, and energetic people to be bothered wasting time with takers, no matter how fancy the cars they drive or the homes they live in.

From a national perspective, balancing state budgets without having to worry about local budgets is a trivial problem. Roughly half of state spending is for aid to local governments. All but a few states could easily balance their state budgets simply by allowing no increases in local aid.

The difficult problem in dealing with structural deficits comes when likely spending and revenues are considered together, as they obviously must be to consider financing of education and other important functions. Consideration of state and local finances together implies that states have substantial control over local taxes. Please see the section titled “State-Local Fiscal Relations” for more information.

The revisions from the data presented in this report to the report to be published by the National Education Association will affect the exact size of structural deficits presented in certain tables and the rankings of certain states not including Tennessee or other states with large structural deficits. All revenue calculations reflect measures of economic growth trends. The period chosen for calculating trends happened to include an unusual federal crop support payment causing artificially high economic growth and revenue projections for states where grain and/or corn production is a significant factor in total personal income. Selecting a different period will move the affected states somewhat downward in the comparisons of structural deficits but nowhere near Tennessee.