PrefBlog

Jason Zweig of the Wall Street Journal has some good advice for fixed income investors in a piece titled Investors: Do the Hard Thing, Don’t Do the Easy Thing:

The reach for yield is becoming a reckless lunge.

While high-quality bonds still have their place, too many investors are buying high-risk bonds instead.

Since June 30, according to TrimTabs Investment Research, a firm in Sausalito, Calif., that tracks how money moves in and out of the financial markets, investors have poured $1.2 billion into exchange-traded funds specializing in bonds from emerging-market countries. So far in July, investors have pumped another $2.8 billion into high-yield ETFs holding so-called junk bonds issued by below-investment-grade companies.

Put simply, one out of every 14 dollars invested in those two fund categories arrived in the past three weeks.
…
The easy thing is to submit to your worst instincts and reach for riskier investments that pay higher income — for now.

What is hard is to be patient and ornery. As bonds yield less, save more. Remember that you can get higher yield only by buying longer-term or lower-quality bonds — which will also raise your risk. With interest payments so low, long-term bonds are particularly vulnerable to an unexpected rise in rates.

This entry was posted on Friday, July 22nd, 2016 at 9:56 pm and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.