Cost basis allocation question: GM bonds conversion to stock & warrants
This is a bit complicated because of all the moving parts, but is a little simpler because the two warrants are now publicly traded.  The main rule appears to be that your cost should be apportioned into the bases for the pieces you received by the proportions of the prices established in the market on the first day of trading in which they trade separately (source: costbasis.com).  Since the A and B GM warrants began trading in March 2011 (at least that's what a quick search shows), use their prices and the GM price on the same day to establish the proportions.  You also must include the factor of how much of each piece you received for each of your bonds. So, for example, if the prices of GM, WSA, and WSB, were $32, $23, and $17 on the first day of trading, and you got 3 shares GM, 2 A warrants, and 1 B warrant for your bonds, their worth on first day of separate trading would be: and so the proportion of your bond cost to be allocated to your A warrants, for instance, would be 46/159 or about 28.9% using these example figures. The small dribbles of additional securities you have received already, I would include in the calculation above, and if you in the future receive any further dribbles, I would assign them a basis of $0 (as your full bond cost would have already been completely allocated). I found additional evidence on TDAmeritrade's website that helps confirm that the 3/17/11 prices Jason found are the ones to use since all three were traded on that day.  Although GM+A had prices and trading as early as 2/28/11, GM+B's price and trading shows up no earlier than 3/14/11, but there was no trading indicated for GM+A on 3/14 so 3/14 can't be used.  The two warrants were not traded every day after they came out. The next date that I found when all three, GM, GM+A and GM+B had trades was 4/11/11.  I found Google and Yahoo Finance unable to produce the historical prices for the warrants that far back.  Unfortunately, you need to be a TDA accountholder in order to access TDA's historical price information for stocks. Because the distribution date was APR 21, 2011, THAT should be the correct date for ascertainng the stock prices of the GM stock and warrants.  The subsequent distributions after April should also be allocated in accordance with their distribution dates, with tax basis being reduced from the original APR 21st date's allocations, and reallocated to those subsequent distributions, taking into account any interim sales you might have made. Your final tax basis could not be determined until June 14, 2012, the first day of separate trading of all four securities that you received from the GM bankruptcy reorganization.
"Most articles on investing recommend that investors that are just starting out to invest in index stock or bonds funds.  This is the easiest way to get rolling and limit risk by investing in bonds and stocks, and not either one of the asset classes alone.   When you start to look deeper into investing there are so many options: Small Cap, Large Cap, technical analysis, fundamental analysis, option strategies, and on and on.  This can end up being a full time job or chewing into a lot of personal time.  It is a great challenge to learn various investment strategies frankly for the average person that works full time it is a huge effort.  I would recommend also reading ""The Intelligent Asset Allocator"" to get a wider perspective on how asset allocation can help grow a portfolio and reduce risk.  This book covers a simple process." There's really no right or wrong answer here because you'll be fine either way. If you've investing amounts in the low 5 figures you're likely just getting started, and if your asset allocation is not optimal it's not that big a deal because you have a long time horizon to adjust it, and the expense ratio differences here won't add up to that much. A third option is Vanguard ETFs, which have the expense ratio of Admiral Shares but have lower minimums (i.e. the cost of a single share, typically on the order of $100). However, they are a bit more advanced than mutual funds in that they trade on the market and require you to place orders rather than just specifying the amount you want to buy. A downside here is you might end up with a small amount of cash that you can't invest, since you can initially only buy whole numbers of ETFs shares. So what I'd recommend is buying roughly the correct number of ETFs shares you want except for your largest allocation, then use the rest of your cash on Admiral Shares of that (if possible). For example, let's say you have $15k to invest and you want to be 2/3 U.S. stock, 1/6 international stock, and 1/6 U.S. bond. I would buy as many shares of VXUS (international stock ETF) and BND (U.S. bond ETF) as you can get for $2500 each, then whatever is left over (~$10k) put into VTSAX (U.S. stock Admiral Shares mutual fund). "1. Interest rates What you should know is that the longer the ""term"" of a bond fund, the more it will be affected by interest rates. So a short-term bond fund will not be subject to large gains or losses due to rate changes, an intermediate-term bond fund will be subject to moderate gains or losses, and a long-term bond fund will be subject to the largest gains or losses. When a book or financial planner says to buy ""bonds"" with no other qualification, they almost always mean investment-grade intermediate-term bond funds (or for individual bonds, the equivalent would be a bond ladder averaging an intermediate term). If you want technical details, look at the ""average duration"" or ""average maturity"" of the bond fund; as a rough guide, if the duration is 10, then a 1% change in interest rates would be a 10% gain or loss on the fund. Another thing you can do is look at long-term (10 years or ideally longer) performance history on some short, intermediate, and long term bond index funds, and you can see how the long term funds bounced around more. Non-investment-grade bonds (aka junk bonds or high yield bonds) are more affected by factors other than interest rates, including some of the same factors (economic booms or recessions) that affect stocks. As a result, they aren't as good for diversifying a portfolio that otherwise consists of stocks. (Having stocks, investment grade bonds, and also a little bit in high-yield bonds can add diversification, though. Just don't replace your bond allocation with high-yield bonds.) A variety of ""complicated"" bonds exist (convertible bonds are an example) and these are tough to analyze. There are also ""floating rate"" bonds (bank loan funds), these have minimal interest rate sensitivity because the rate goes up to offset rate rises. These funds still have credit risks, in the credit crisis some of them lost a lot of money. 2. Diversification The purpose of diversification is risk control. Your non-bond funds will outperform in many years, but in other years (say the -37% S&P 500 drop in 2008) they may not. You will not know in advance which year you'll get. You get risk control in at least a few ways. There's also an academic Modern Portfolio Theory explanation for why you should diversify among risky assets (aka stocks), something like: for a given desired risk/return ratio, it's better to leverage up a diverse portfolio than to use a non-diverse portfolio, because risk that can be eliminated through diversification is not compensated by increased returns. The theory also goes that you should choose your diversification between risk assets and the risk-free asset according to your risk tolerance (i.e. select the highest return with tolerable risk). See http://en.wikipedia.org/wiki/Modern_portfolio_theory for excruciating detail. The translation of the MPT stuff to practical steps is typically, put as much in stock index funds as you can tolerate over your time horizon, and put the rest in (intermediate-term investment-grade) bond index funds. That's probably what your planner is asking you to do. My personal view, which is not the standard view, is that you should take as much risk as you need to take, not as much as you think you can tolerate: http://blog.ometer.com/2010/11/10/take-risks-in-life-for-savings-choose-a-balanced-fund/ But almost everyone else will say to do the 80/20 if you have decades to retirement and feel you can tolerate the risk, so my view that 60/40 is the max desirable allocation to stocks is not mainstream. Your planner's 80/20 advice is the standard advice. Before doing 100% stocks I'd give you at least a couple cautions: See also:" Since you already have twice your target in that emergency fund, putting that overage to work is a good idea. The impression that I get is that you'd still like to stay on the safe side. What you're looking for is a Balanced Fund.  In a balanced fund the managers invest in both stocks and bonds (and cash). Since you have that diversification between those two asset classes, their returns tend to be much less volatile than other funds. Also, because of their intended audience and the traditions from that class of funds' long history, they tend to invest somewhat more conservatively in both asset classes.  There are two general types of balanced funds: Conservative Allocation funds and Moderate Allocation funds. Conservative allocation funds invest in more fixed income than equity (the classic mix is 60% bonds, 40% stocks). Moderate allocation funds invest in more equity than fixed income (classic mix: 40% bonds, 60% stocks). A good pair of funds that are similar but exemplify the difference between conservative allocation and moderate allocation are Vanguard's Wellesley Income Fund (VWINX) for the former and Vanguard's Wellington Fund (VWELX) for the latter. (Disclaimer: though both funds are broadly considered excellent, this is not a recommendation.) Good luck sorting this out! This is great, thank you. Can you think of any cases where expected return is greater than interest payments (like in #2) but the best choice would still be raise money through equity issuing? My intuition tells me this may be possible for an expensive company. "From the HLSS 1st quarter 10Q: ""Match funded advances on loans serviced for others result from our transfers of residential loan servicing advances to SPEs in exchange for cash. The SPEs issue debt supported by collections on the transferred advances. We made these transfers under the terms of our advance facility agreements. These transfers do not qualify for sale accounting because we retain control over the transferred assets. As a result, we account for these transfers as financings and classify the transferred advances on our Interim Condensed Consolidated Balance Sheet as Match funded advances and the related liabilities as Match funded liabilities. We use collections on the Match funded advances pledged to the SPEs to repay principal and to pay interest and the expenses of the entity. Holders of the debt issued by this entity can look only to the assets of the entity itself for satisfaction of the debt and have no recourse against HLSS.""   I'm not an expert in the accounting of these things but I'll take a stab from the view of a bond investor.  Let's assume the mortgage(s) in question have been pooled together and sold into the bond market in the form of a mortgage-backed security (MBS).    When a homeowner falls behind on their payment, scheduled principal and interest (their monthly mortgage payment amount, or ""P&amp;I"") is advanced as if the borrower is still current to the person who holds the MBS.  This is typically done from the time they first fall behind until either they 1) catch up on their payments or, 2) are foreclosed upon and the home is sold to repay the mortgage balance.  In either instance the advanced monthly payments are recaptured by the servicer before the holder of the MBS is paid.  In this sense, the servicer develops a sort of prepaid asset over time by advancing money they are almost certain to recover at a future date (usually via foreclosure and liquidation).    Due to a high number of borrowers falling behind on their payments since the housing crisis and the resulting time it takes to foreclose on a property, the servicers (OCN, HLSS, etc.) have built a large balance of advances on the asset side of their balance sheet.  To free up this cash prior to liquidation of the home, they have sold short term bonds against this asset (via an SPE), thereby creating the liability you reference.  So in essence they have, say, a home they expect to be liquidated in twelve months that they have advanced P&amp;I on.  The short term bonds sold via the SPE offset this asset at an equivalent term, thereby making the asset and liability ""match funded""." Do what's outlined here. The capital asset pricing model will reveal how an asset (a stock in this instance) performed relative to the market performance for that time period. This by itself will answer your assignment's question but allowing you to traverse much deeper in the intricate details of the field. You'll learn a few interesting things on the way! Good luck :) "I will say in advance this is not a great answer, but I had a similar experience when I owned a CIT bond that defaulted. I ended up getting stock plus 5 newly issued bonds as a replacement for my defaulted bond. My broker had no clue on cost basis and didn't even try for the new securities, I called the ""hotline"" setup about CIT default and they knew nothing, and finally I read all the paperwork around the restructuring but it was less than transparent. So in the end I ended up claiming everything as a wash, no gain/no loss - which probably screwed me in the end as I believe I ended up down. It was a very small position for me and was not worth the headache :("