It’s hard to believe how many years we have dealt with low to no interest being paid on bank deposits, treasuries, and other stable value investments. The art of generating retirement income from the harvesting of gains on equity based investments isn’t alway appreciated nor is it easy. Some clients deal with it well and have an extraordinary ability to cope with market fluctuations. Others need and should stay with fixed income investment products. Here are two types of bonds that I can and will work with at this time.
High Yield Bonds – They can be taxable (corporates) or tax-free (municipals). These bonds pay a higher yield than others for a variety of reasons such as perceived higher risk of default, early call dates, or a need to attract investors. Currently, global default rates are declining and many analysts feel that the roughly 5.2% more you can get paid over Treasuries is worth the additional risk. I agree. Please understand that high yield/junk bonds (grade BB or below) are not investment grade securities and are subject to higher risks than those graded BBB or above. They generally should be part of a diversified portfolio for sophisticated investors.
Emerging Market Debt – Bonds issued from other countries have attracted many investors the past few years. Emerging market economies came through the financial crisis well compared to many developed countries. As of 3/30/11, yields from this sector were averaging 5.7% with many issuers having large reserves and more favorable credit quality than some developed nations. Please understand that international and emerging market investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. Barclay’s contributed data for this article.
Until next week,
Susan R. Linkous
“Susan On Money”