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Bonds, interest rates and the impact of inflation

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There are two fundamental ways that you can profit from owning bonds: from the interest that bonds pay, or from any increase in the bond’s price. Many people who invest in bonds because they want a steady stream of income are surprised to learn that bond prices can fluctuate, just as they do with any security traded in the secondary market. If you sell a bond before its maturity date, you may get more than its face value; you could also receive less if you must sell when bond prices are down. The closer the bond is to its maturity date, the closer to its face value the price is likely to be.

Though the ups and downs of the bond market are not usually as dramatic as the movements of the stock market, they can still have a significant impact on your overall return. If you’re considering investing in bonds, either directly or through a mutual fund or exchange-traded fund, it’s important to understand how bonds behave and what can affect your investment in them.

The price-yield seesaw and interest rates

Just as a bond’s price can fluctuate, so can its yield, that is its overall percentage rate of return on your investment at any given time. A typical bond’s coupon rate, which is the annual interest rate it pays, is fixed. However, the yield isn’t because the yield percentage depends not only on a bond’s coupon rate but also on changes in its price.

Both bond prices and yields go up and down, but there’s an important rule to remember about the relationship between the two: They move in opposite directions, much like a seesaw. 

When a bond’s price goes up, its yield goes down, even though the coupon rate hasn’t changed. The opposite is true as well: When a bond’s price drops, its yield goes up.

That’s true not only for individual bonds but also for the bond market as a whole. When bond prices rise, yields in general fall, and vice versa.

What moves the seesaw?

In some cases, a bond’s price is affected by something that is unique to its issuer, for example, a change in the bond’s rating. However, other factors have an impact on all bonds. The twin factors that affect a bond’s price are inflation and changing interest rates. A rise in either interest rates or the inflation rate will tend to cause bond prices to drop. Inflation and interest rates behave similarly to bond yields, moving in the opposite direction from bond prices.

If inflation means higher prices, why do bond prices drop?

The answer has to do with the relative value of the interest that a specific bond pays. Rising prices over time reduce the purchasing power of each interest payment a bond makes. Let’s say a five-year bond pays $400 every six months. Inflation means that $400 will buy less five years from now. When investors worry that a bond’s yield won’t keep up with the rising costs of inflation, the price of the bond drops because there is less investor demand for it.

Why watch the Fed?

Inflation also affects interest rates. If you’ve heard a news commentator talk about the Federal Reserve Board raising or lowering interest rates, you may not have paid much attention unless you were about to buy a house or take out a loan. However, the Fed’s decisions on interest rates can also have an impact on the market value of your bonds.

The Fed takes an active role in trying to prevent inflation from spiraling out of control. When the Fed gets concerned that the rate of inflation is rising, it may decide to raise interest rates. Why? To try to slow the economy by making it more expensive to borrow money. For example, when interest rates on mortgages go up, fewer people can afford to buy homes. That tends to dampen the housing market, which in turn can affect the economy.

When the Fed raises its target interest rate, other interest rates and bond yields typically rise as well. That’s because bond issuers must pay a competitive interest rate to get people to buy their bonds. 

New bonds paying higher interest rates mean existing bonds with lower rates are less valuable. Prices of existing bonds fall.

That’s why bond prices can drop even though the economy may be growing. An overheated economy can lead to inflation, and investors begin to worry that the Fed may have to raise interest rates, which would hurt bond prices even though yields are higher.

Falling interest rates: good news, bad news

Just the opposite happens when interest rates are falling. When rates are dropping, bonds issued today will typically pay a lower interest rate than similar bonds issued when rates were higher. Those older bonds with higher yields become more valuable to investors, who are willing to pay a higher price to get that greater income stream. As a result, prices for existing bonds with higher interest rates tend to rise.

Example: Jane buys a newly issued 10-year corporate bond that has a 4 percent coupon rate, that is, its annual payments equal 4 percent of the bond’s principal. Three years later, she wants to sell the bond. However, interest rates have risen; corporate bonds being issued now are paying interest rates of 6 percent. As a result, investors won’t pay Jane as much for her bond, because they could buy a newer bond that would pay them more interest. If interest rates later begin to fall, the value of Jane’s bond would rise again, especially if interest rates fall below 4 percent. 

When interest rates begin to drop, it’s often because the Fed believes the economy has begun to slow. That may or may not be good for bonds. The good news: Bond prices may go up. However, a slowing economy also increases the chance that some borrowers may default on their bonds. Also, when interest rates fall, some bond issuers may redeem existing debt and issue new bonds at a lower interest rate, just as you might refinance a mortgage. 

If you plan to reinvest any of your bond income, it may be a challenge to generate the same amount of income without adjusting your investment strategy.

All bond investments are not alike

Inflation and interest rate changes don’t affect all bonds equally. Under normal conditions, short-term interest rates may feel the effects of any Fed action almost immediately, but longer-term bonds likely will see the greatest price changes.

Also, a bond mutual fund may be affected somewhat differently than an individual bond. 

For example, a bond fund’s manager may be able to alter the fund’s holdings to try to minimize the impact of rate changes. Your financial professional may do something similar if you hold individual bonds. 

Bond funds are subject to the same inflation, interest rate,and credit risks as their underlying bonds, and if interest rates rise and bond prices fall, that can adversely affect a bond fund’s performance. Before purchasing a mutual fund, you should carefully consider its investment objective, risks, fees, and expenses, which can be found in the prospectus available from the fund. Read it carefully before investing.

Focus on your goals, not on interest rates alone

Though it’s useful to understand generally how bond prices are influenced by interest rates and inflation, it probably doesn’t make sense to obsess over what the Fed’s next decision will be. Interest rate cycles tend to occur over months and even years. Also, the relationship between interest rates, inflation and bond prices is complex and can be affected by factors other than the ones outlined here. Remember, investments seeking to achieve higher yields also involve a higher degree of risk.

Your bond investments need to be tailored to your individual financial goals and take into account your other investments. A financial professional may be able to help you design your portfolio to accommodate changing economic circumstances.

This article was written by Broadridge, an independent third party, and provided by Hall Sumner, Vice President, Investments at  TLS Wealth Management of Raymond James. 

Hall Sumner is a financial advisor with Raymond James & Associates Inc., Member New York Stock Exchange/SIPC located at 2015 Boundary Street, Suite 220, Beaufort SC 29902. He can be contacted at 843-379-6100 or  hall.sumner@raymondjames.com or visit our website at: www.tlswealthmanagement.com

This information was developed by Broadridge, an independent third party. It is general in nature, is not a complete statement of all information necessary for making an investment decision, and is not a recommendation or a solicitation to buy or sell any security. 

Bike shop celebrates 30 year anniversary

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Lowcountry bikes

By Lolita Huckaby

Lowcountry Bicycles Inc. is celebrating 30 years of business this year, and like the community, it has changed and grown.

“Thirty years ago, I was looking for a business that combined the loves of my life: biking and being on the water,” said store owner John Feeser. 

Beaufort didn’t have a bike shop and Feeser saw an opportunity to capitalize on what he predicted would be a growing market.

“When we opened in 1987, there were no share-the-road signs in the county, there wasn’t a hint of a bike path anywhere and the Spanish Moss Trail wasn’t even in the planning stages,” Feeser said. 

The Spanish Moss Trail, on whose advisory board Feeser serves, now stretches 16 miles from the Port of Port Royal inland and draws hundreds of bikers, walkers and runners daily. 

And as the county has grown, population-wise, especially in the retiree area, Lowcountry Bicycles has grown.

“We’re seeing what bike shop owners throughout the country are seeing – more retirees looking not just for additional ways to remain healthy but as a form of socialization,” Feeser said. 

“This is also a growth area for young families and the military (home of Parris Island Marine Corps Recruit Depot and the Marine Corps Air Station Beaufort), communities that support us as we support them.”

The business opened in downtown Beaufort within the city’s historic district, but within a few years it was apparent more space was needed and a move was made across the bridge to Lady’s Island. The new space allowed for expanded merchandise, which includes Jamis, Electra and Felt.  

Feeser, who began his professional bicycle experience in Spartanburg, said the key to Lowcountry Bicycles’ success has been customer service.

“If you’re going to work in this business, especially in a smaller town, you have to be a people person and you have to love the sport,” he said.  “I want my customers to be treated the way I expect to be treated.”  

Concept stores, big-box stores and on-line marketing are challenges for smaller retail shops like Lowcountry Bikes, Feeser said. 

“But if you welcome every customer that comes in your store and offer professional services not available elsewhere, we just may survive. And of course, we have to say thanks to our loyal friends and customers for the first 30 years,” he added.

Tire-related accidents can be avoided

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By State Farm

Maintaining proper tire pressure is often overlooked by drivers until they need to swerve or brake unexpectedly to avoid a collision. 

There is no perfect calculation to tell exactly how long your tires will last. However, with proper vehicle maintenance, many tire-related accidents can be easily avoided. 

Use these quick tips to maintain appropriate tire pressure. 

Tip 1: Check your tire pressure often.

If you wait too long to check your tire pressure, you could be forced to deal with a flat, blowout, unevenly worn tire or even worse, a tire-related accident. 

Tires lose small amounts of air pressure each day from a variety of factors including: cooling temperatures, seasonal or altitude changes and road debris like nails and screws. 

It’s important to get into a routine of checking your tires every time you get gas, adding to the vehicle safety and extending the life of the tire. 

Tip 2: Get a digital pressure gauge.

Purchase a digital tire gauge to use when filling your tires. It’s fine to use the gas station’s air when filling your tires, but you shouldn’t rely on the accuracy of its measurement. Invest in a personal digital tire gauge to keep in your car. 

Tip 3: Know the proper amount of tire air pressure.

Inside the driver’s side door, glove box or fuel door, there should be a tire placard showing the manufacturer recommended air pressure for your vehicle’s front and rear tires, and  sometimes your spare tire too.

Typically it specifies the “cold tire inflation pressure” in PSI. The PSI number is what you set the air pressure gauge to if you are adding air at a service station. To compare and book an auto repair near you, check out Openbay at www.openbay.com/invite/statefarm?source=article_tire_pressure. State Farm customers can receive $40 in total savings on their first two auto repair or maintenance services compliments of Openbay.

Business briefs for August 31st-September 6th

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Fridays @ the Corridor: Promise of Smart Communities

The idea of using smart and connected technologies to make communities work better is quickly gaining traction in municipalities around the world. Smart cities can increase economic development, drive citizen engagement and promote sustainability. 

At the September Fridays @ the Corridor, Crystal Chubeck, Smart Communities architect for Verizon, will discuss how cities can develop viable and comprehensive smart platforms to help their communities become more resilient through the incremental adoption of digital technologies and automation.

This one-hour interactive forum, meant to engage and inform Beaufort’s knowledge-based community, will be held at 8:30 a.m. Friday, Sept. 8.

Attendance is limited to 25 guests, with priority seating for Digital Corridor members. The nonmember fee is $10 and can be paid by cash or check at the door.

Metered and free street parking is available in and around BASEcamp at 500 Carteret St. RSVP by emailing Karen Warner at fridays@beaufortdigital.com

Chamber Corner for August 31st-September 6th

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Coffee with Colleagues coming to Hilton hotel

Coffee with Colleagues, a free networking opportunity for Beaufort Regional Chamber of Commerce members, will be held from 8:30-9:30 a.m. Friday, Sept. 8. 

This free event will be hosted by the Beaufort Hilton Garden Inn at 1500 Queen St. in Beaufort. 

There will be a drawing for a two-night stay with breakfast at the Beaufort Hilton Garden Inn.

Register online by emailing lanelle@beaufortsc.org.

United Way celebration hosted by Chamber

The United Way of the Lowcountry will celebrate its one-year anniversary at its new location in Beaufort at 1277 Ribaut Road. 

The event will be held from 8:30-10 a.m. Thursday, Aug. 31, with a ribbon cutting ceremony at 9 a.m.

United Way of the Lowcountry (UWLC) brings people and resources together to meet the immediate needs of the neighbors in Beaufort and Jasper counties through funded agencies and direct services like the HELPLINE, while diligently working to create lasting, positive change in the community. 

As a funder, partner and convener, UWLC works with the community to address the root causes of key issues facing the Lowcountry, focusing on four priority areas: Basic Needs, Education, Health and Income/Family Stability.

To learn more about United Way of the Lowcountry, visit uwlowcountry.org. 

For more information about the chamber, visit www.beaufortchamber.org or call 843-525-8500. 

Chamber to celebrate Grand Oak Wealth

The Beaufort Regional Chamber of Commerce will celebrate the grand opening with an open house at Grand Oak Wealth Management’s at 701 Carteret St.

The open house will be held from 1-5 p.m., with a ribbon cutting at 4 p.m. 

Light hor d’oeuvres and beverages will be served. 

Email Carolyn@beaufortsc.org.

It’s a seller’s real estate market

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By Janet Gresham

How long can the residential real estate market go on like this? 

We are about two years into a national trend of dropping housing supply and increasing median sales prices. 

There are some regional variations to the story, but the shift to a predominantly seller’s market is mostly complete. 

Multiple-offer situations over asking price are commonplace in many communities, and good homes are routinely off the market after a single day. It is evident that a favorable economy keeps hungry buyers in the chase.

For July, New Listings were up 11.5 percent to 262. Pending Sales decreased 5.6 percent to 202. Inventory grew 3.8 percent to 1,012 units.

Prices moved higher as Median Sales Price was up 4.9 percent to $220,750. Days on Market increased 7.9 percent to 82 days. Months Supply of Inventory was up 5.7 percent to 5.6 months, indicating that supply increased relative to demand. 

Although the unemployment rate remains unchanged at its favorable national 4.3 percent rate, wage growth has not been rising at the steady clip that would be expected in an improving economy. Sales activity manages to keep churning along despite looming shortages in new construction. 

Lower price ranges are starting to feel the effects of the supply and demand gap, as first-time buyers scramble to get offers in at an increasing pace.

Janet Gresham is the CEO of the Beaufort County Association of Realtors and the Beaufort Multiple Listing Service, Inc.

Business briefs and Chamber Corner for August 24th-30th

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streamer

Photo above: American Legion Beaufort Post 9 is striving to promote both patriotism and businesses in the Beaufort area by calling attention to those that proudly display the U.S. flag at their location. Post 9 presents those enterprises with a framed certificate thanking them. Here, Post 9 Vice Commander Paul Sweet presents Lisa and Jay Elder of The Original Steamer Oyster & Steakhouse with a certificate of appreciation for displaying the nation’s flag.

Hospitality job fair to be held Aug. 28

A Beaufort Hospitality Job Fair/Hiring Event will be held Monday, Aug. 28, at Holiday Inn & Suites at 2225 Boundary St. in Beaufort.

Job fair hours will be from 11 a.m. to 1 p.m. and 4-7 p.m.

To register your business, visit www.scrla.org/events and click on the Beaufort Hiring Event.

Food truck fest looks for vendors

The Beaufort Food Truck Festival, which will be held Saturday, Oct. 14, in downtown Beaufort, is looking for food and arts and crafts vendors. 

The event is expected to draw up to 1,500 people.

Applications will be accepted based on several factors and they will be accepted until the event is full. 

The Lowcountry Jaycees is sponsoring the event, and proceeds will benefit  Camp Hope, a summer camp for children with cognitive disabilities.

For information on sponsorships or becoming a vendor, email lowcountryjaycees@gmail.com.

State of the Schools to be held Sept. 13

The Beaufort Regional Chamber will hold a State of the School event from 8-9:30 a.m. Wednesday, Sept. 13, at Holiday Inn & Suites, 2225 Boundary St.

South Carolina Superintendent of Education Molly Spearman and the leaders from the area school systems will share information concerning education in Beaufort County and the impact on the community.

Speakers will include Spearman, Dr. Jeffrey Moss of the Beaufort County School District; Dr. Richard Gough, Technical College of the Lowcountry; and Dr. Al Panu, University of South Carolina Beaufort.

Guests will also hear from a panel of leaders representing the area’s private and charter schools including: Beaufort Academy, Bridge Preparatory School, Holy Trinity Classical Christian School, John Paul II High School, Lowcountry Montessori School, Riverview Charter School and St. Peter’s Catholic School.

The cost is $20 for chamber members; $25 for nonmembers; and $160 for a table of eight.

Contact LaNelle at LaNelle@BeaufortSC.org.

Health & Wellness Expo to be held Sept. 14

A Health & Wellness Expo sponsored by the Beaufort Regional Chamber of Commerce will be held from 4-7 p.m. Thursday, Sept. 14, at Tabby Place in downtown Beaufort.

For booth inquiries, contact LaNelle at LaNelle@BeaufortSC.org or 843-525-8537.

Looking to ease college tuition anxiety?

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Did you realize that, according to the College Board, more than $240 billion in grants from all sources (federal loans, federal work-study, and federal tax credits and deductions) was awarded to undergraduate and graduate students in the 2015-2016 academic year? 

And that those students came from households spanning a wide range of household incomes? 

During that academic year, the average aid for a full-time college student amounted to $14,460, including $8,390 in grants (that don’t have to be repaid) and $4,720 in federal loans.

Once you realize how many resources may be available and begin your research on financial assistance, you could be on your way toward easing some of the anxiety often associated with paying for college.

Following are five lessons for seeking help for college costs:

Start planning during the high school years. Pay particular attention to your child’s junior year of high school and reposition assets or adjust income before it begins. When financial aid officers review a family’s need, they analyze the family’s income in the calendar year beginning in January of the student’s junior year.

Assume you’re eligible for aid … until you’re told you’re not. There are no specific guidelines or rules of thumb that can accurately predict the aid you and your child may be offered. Because each family’s circumstances are different, keep an open mind as you consider financial aid alternatives. A number of factors ‒ such as having several children in school at the same time ‒ may increase your eligibility for assistance.

Reassess assets held by your children. Federal guidelines expect children to contribute 20 percent of certain assets toward their education’s costs, while parents are expected to contribute up to 5.64 percent. 

That’s why assets held in custodial accounts (bank accounts, trust funds, brokerage accounts) in your children’s names may reduce the aid for which the family qualifies. But assets held in Coverdell Education Savings Accounts and 529 plans are factored into the parent’s formula, having less effect on the aid for which the family qualifies.

Help grandparents’ target their gifts. Grandparents’ hearts often lead them to make gifts directly to grandchildren or to pay their tuition expenses. Even though payments made directly to a college avoid gift taxes, financial aid sources generally count these payments as an additional resource the family has to pay for college expenses. Distributions from grandparent-owned 529 plans are also considered as resources and assessed as your child’s income, which can reduce eligible aid. 

A better idea for grandparents may be to make a gift to a 529 plan that is owned by the parent or grandchild. The financial aid treatment of gifts to 529 plans is generally more favorable than for gifts made directly to the grandchild. Plus grandparents using this alternative may also realize estate tax and gift tax benefits.

Assess your family’s financial situation to determine what your children will need. Gather records and begin researching available financial aid, grants, loans and scholarships. Two forms will be key to your aid application process: the Free Application for Federal Student Aid (FAFSA) and the College Scholarship Service Financial Aid Profile (PROFILE). 

The FAFSA helps you apply for federal aid, and many states also use it to determine a resident student’s eligibility for state aid. You can find forms in high-school guidance offices, college financial-aid offices or online.

Many schools use the PROFILE to collect additional information before awarding their own funds, i.e., institutional student aid. 

Please consider the investment objectives, risks, charges and expenses carefully before investing in a 529 savings plan. The official statement, which contains this and other information, can be obtained by calling your financial advisor. Read it carefully before you invest. 

This article was written by/for Wells Fargo Advisors and provided courtesy of Katie C. Phifer, certified financial planner and financial advisor in Beaufort at 843-982-1506. Any third-party posts, reviews or comments associated with this listing are not endorsed by Wells Fargo Advisors and do not necessarily represent the views of Phifer or Wells Fargo Advisors and have not been reviewed by the firm for completeness or accuracy.

Business briefs for August 17th-23rd

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legion

Photo above: American Legion Beaufort Post 9 is striving to promote both patriotism and businesses in the Beaufort area by calling attention to those that proudly display the U.S. flag at their location. Post 9 presents those enterprises with a framed certificate thanking them. Here, Post 9 Vice Commander Paul Sweet presents owner Jeff Harris Jr. and staff of Carolina Custom Carts with a certificate of appreciation for displaying our nation’s flag.

Beaufort Inn announces new cottage name

The Beaufort Inn, a 36-room boutique hotel in downtown Beaufort, is adding 12 new rooms, called The Craven, that will be ready for reservation this fall.

Spanning an entire city block, the Beaufort Inn is made up of several cottages and event venue spaces. The new cottage will include two more outdoor venue areas.

In addition to its location on Craven Street, which was voted one of the most charming streets in the South by Southern Living Magazine, Craven is a significant name for Beaufort. 

William Lord Craven was elected palentine in 1707 after Lord Granville’s death and during Craven’s time, he established and declared Beaufort Town at Port Royal a seaport which was to be ruled by the provisions of the Navigations Acts. Each building at the Beaufort Inn has been named to reflect either its own history or significant history from the area.

In partnership with the Regional Beaufort Chamber of Commerce, the Beaufort Inn hosted a contest to solicit name suggestions. The contest winner will receive a two-night stay in the new cottage, a $100 gift certificate to Saltus and Champagne and chocolates upon arrival. 

There were over 1,000 submissions in the naming contest, and six people submitted “Craven Cottage.” After placing their names in a raffle, Julie Snyder is the chosen winner. 

The Beaufort Inn’s Craven Cottage is now taking reservations and will be open this November. Average rates are $279 a night. For reservations, call the front desk at 843-379-4667.

Health & Wellness Expo to be held Sept. 14

A Health & Wellness Expo sponsored by the Beaufort Regional Chamber of Commerce will be held from 4-7 p.m. Thursday, Sept. 14, at Tabby Place in downtown Beaufort.

Guests will learn about the businesses that help make Beaufort County the healthiest county in the state. 

For booth inquiries, contact LaNelle at LaNelle@BeaufortSC.org or 843-525-8537.

Food truck fest looks for vendors

The Beaufort Food Truck Festival, which will be held Saturday, Oct. 14, in downtown Beaufort, is looking for food and arts and crafts vendors.

The event is expected to draw up to 1,500 people.

Applications will be accepted based on several factors and they will be accepted until the event is full. 

The Lowcountry Jaycees is sponsoring the event, and proceeds will benefit  Camp Hope, a summer camp for children with cognitive disabilities.

For information on sponsorships or becoming a vendor, email lowcountryjaycees@gmail.com.

Chamber Corner for August 17th-23rd

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Chamber offering free workshop

The U.S. Black Chamber of Commerce Economic Development Corporation, in partnership with the Beaufort County Black Chamber of Commerce, will hold a free workshop for minority and women entrepreneurs on commercial lending and equity investment options, contracting matchmaking, and credit consultations to build wealth.  

The event will be held from 8 a.m. to noon Friday, Aug. 18, at the Savannah International Trade & Convention Center at 1 International Drive in Savannah.

Coffee with Colleagues coming Aug. 18

The Beaufort Regional Chamber of Commerce will hold a Coffee with Colleagues from 8:30-9:30 a.m. Friday, Aug. 18, at the S.C. Vocational Rehabilitation Department at 747 Robert Smalls Parkway in Beaufort.

This is a free networking opportunity for chamber members. 

Email lanelle@beaufortsc.org.

Freedom Boat Club to hold celebration

The Beaufort Regional Chamber and the Freedom Boat Club will celebrate the club’s grand opening in Port Royal from 4-5 pm. Tuesday, Aug. 22, at the Port Royal Landing Marina at 1 Port Royal Landing Drive.

There will be a ribbon cutting ceremony and light refreshments

Email Carolyn@beaufortsc.org.

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