Bonds

Amid Chaos, Invest for Income

Fighting again in the Middle East, oil prices and Wall Street volatile and apparently you need life insurance to fly certain airlines: In what seem scary times to invest, how do you cut through the clutter of panicky, short-term and just plain bad money strategies?

Everyone wants a strategy that builds confidence about investing – especially when everyone seems to be holding their breath. My answer: income investing, a way to generate consistent cash flow from your liquid investments.

Low Wages Keep Rates Low

Don’t rush to get rid of bonds yet. Rising interest rates, which harm bond prices, are not in the offing. Despite good news on jobless figures, the Federal Reserve’s concerns about wages may keep rates low for longer than markets expect.

Questions About Alternatives

Alternative investments are all the rage these days. Think through all the details, though, before deciding if they fit your financial plans.

Mutual fund companies fall all over themselves to sell financial advisors and their clients on “liquid alts” easily bought or sold or on hedge fund-like strategies with the daily liquidity offered in a mutual fund wrapper.

How to Hedge for Inflation

No investment can perfectly hedge inflation, but placing some protection against inflation in your portfolio is still possible. Your best bets are short-term Treasury Inflation Protected Securities and commodities.

When evaluating whether an asset class effectively protects against inflation, we examine the correlation between the returns and inflation. The stronger the correlation is, the better inflation protection the asset provides.

Trouble in a Quiet Market?

Some indicators point to a complacent market lately. Boon or warning? How scared or comfortable are investors now and, for that matter, how reliable are our indicators?

Too Many Stocks: Bad Idea?

Are you a retiree with most of your retirement investments in stocks? Good idea? No: Even as the markets near or notch records every day, stay conscious of risks of not diversifying between classes of assets.

A recent Wall Street Journal article discussed how retirement savers are putting more money into stocks. Two excerpts:

Why the Market Hasn’t Peaked

Has the stock market, which continues to reach new highs, topped out? Not yet. Here are four reasons I believe the stock market hasn’t reached its peak.

Boomers Won’t Unload Stocks

So baby boomers, heading into retirement and leery of risk, will unload their stocks – and deflate the equities market for a long time, right? Don’t bet on that. For reasons ranging from low bond yields to estate planning, they’ll likely stick with stocks, especially those paying nice dividends.

Anatomy of Low Interest Rates

Interest rates, against all predictions, are still low. Given the dynamics of U.S. and international economics, they likely will stay that way for a while. Here’s why.

When the fixed-income benchmark yield on 10-year Treasury notes jumped to 3% at the end of 2013, forecasters postulated that interest rates would continue to rise. Since bond values move inversely to bond yields, conventional wisdom indicated an exit from bonds and bond funds.

Countering Bonds’ Rate Drop

If your portfolio depends heavily on bonds, you may be on an investing path to financial shortfall in retirement. Here’s what you can do about that.

Bond returns over the next 30 years will probably come in substantially less than such returns over the past 30 years. Given changes in the direction of interest rates and current yields at historical lows, bonds face a strong headwind to generate much return – even in a nominal, non-inflation-adjusted sense. Bonds may actually show net negative returns, depending on interest rates and inflation.

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