Bonds

  • 13 Sep
    What To Expect From The Markets Now

    What To Expect From The Markets Now

    • The German bond’s 3% loss on a 12 basis point yield move shows how risky bonds are right now.
    • The value of the S&P 500 should be around 1,600 but could go lower with bad economic news.
    • Bonds and stocks seem very risky as they both have low yields and large downsides.

    Introduction

    Last Friday was a pretty scary day in the financial markets. The S&P 500 lost 2.45% and bonds also lost ground due to higher yields.

    Stocks and bonds are correlated and don’t provide quality diversification. We have been warning about the risks inherent to bond investing for a while with warnings that the low yields mean high risk and low returns. More →

  • 12 Sep
    Is Cash An Opportunity Cost, Or An Opportunity?

    Is Cash An Opportunity Cost, Or An Opportunity?

    • Holding cash may be considered an opportunity cost, but its also a call option with no expiration date.
    • The yield you can expect from bonds is 1.5% and the yield from stocks is 2% or 4% when earnings are included.
    • Holding cash will give you the liquidity to load up the truck when opportunities come knocking.

    Introduction

    We’re often taught that action is the way to solve all issues; the more you work the more you have, and as good economists, we have to use all available resources. But that isn’t always the best way to approach investing because all that action may sometimes be just like rowing toward a cliff.

    The other option is to do nothing,—or even better, to do something completely separate from investing, like playing with your kids, traveling, etc.—and sticking to cash with a significant part of your portfolio for a while. More →

    By Sven Carlin Bonds Cash Investiv Daily Stocks
  • 02 Sep
    Bonds, Ratings and Yields, Oh My…

    Bonds, Ratings and Yields, Oh My…

    • Credit ratings are very subjective and should therefore be taken with a grain of salt.
    • Junk bond yields have been declining since January, but their volatility represents a huge risk.
    • Be careful with international bonds as you might be exposed to greater risk for lower yields.

    Introduction

    Last week we discussed how dangerous common retirement advice can be. Currently, One of the biggest risks comes from the low yields on bonds because any kind of interest rate increases would immediately lower bond values which might have a severe impact on your retirement. But as there are many types of bonds, today we are going to discuss and compare the various yields and the risks involved within bond investing. More →

  • 26 Aug
    How Dangerous Is Common Retirement Advice?

    How Dangerous Is Common Retirement Advice?

    • Things are much different than they were 10 or 20 years ago but everyone seems to follow the same retirement investing advice.
    • As retirees are in need of more security they are now forced into more risk as bonds have become riskier than stocks while also giving a lower yield.
    • If you’re looking for security, cash may be your best bet.

    Introduction

    You’ve likely heard the advice that as you get closer to retirement you should move toward having a bigger chunk of your portfolio in bonds rather than stocks. Most retirement funds are structured in that way. Vanguard Target Retirement Funds allocate 90% of assets in equities and 10% in bonds if you are going to retire between 2058 and 2062, thus 45 years from now. More →

  • 13 Jul
    Negative Yielding Debt: A Party for Investors or Pure Stupidity?

    Negative Yielding Debt: A Party for Investors or Pure Stupidity?

    • Almost 30% of global sovereign debt comes with a negative yield.
    • The situation is much worse in Japan and Europe than it is in the U.S.
    • Investors should enjoy the asset inflation party while it lasts but also be prepared for the worst.

    Introduction

    Negative yielding debt seemed impossible and illogical for a long time, but it suddenly became a reality a few years ago and now we are seeing it slowly become the new normal.

    This isn’t just strange, it’s dangerous as risk averse investors—like pension funds and insurance companies—are forced to invest in assets that have traditionally been considered safe but that have now become risky, and their returns minimal. Those low returns will result in lower pensions and lower savings which will create new troubles in the future. More →

  • 29 Jun
    BREXIT Aftermath: Where to Look for Returns & What to Avoid Now

    BREXIT Aftermath: Where to Look for Returns & What to Avoid Now

    • U.S. and Europe are overvalued, especially seeing the current political situation and economic fragility.
    • What’s about to hit Europe and the U.S. already hit emerging markets in 2015. There are opportunities in emerging markets now, but where?
    • Bonds seem the riskiest asset of all with no yield and huge potential downside.

    Introduction

    After last week’s BREXIT vote the markets have been in a free fall with a slight recovery yesterday. But savvy investors have been expecting this and it has been a recurring theme at Investiv Daily that stocks are overvalued. In such an overvalued environment it is normal that inflated asset prices take a beating at any sign of future uncertainty. More →

  • 24 Jun
    How to Prepare Your Portfolio For The Next Recession or Stock Market Crash

    How to Prepare Your Portfolio For The Next Recession or Stock Market Crash

    • The risks of a slowdown are higher than the upside.
    • Fundamental trends are negative in advanced economies while emerging markets show higher growth rates and are cheaper.
    • It is important to create a diversified portfolio with uncorrelated assets.

    Introduction

    In an environment where it seems maximum potential for the U.S. economy has been reached, the St. Louis FED chief, James Bullard, has said in his most recent report that he favors only one interest rate increase through 2018, which would at best keep things stable. His view is further supported by the fact that the unemployment rate is sitting at below 5%, and the Personal Consumption Expenditures PCE inflation—measured by the Dallas FED—is at 1.84%, both of which signal that the economy has reached its maximum potential. More →

  • 15 Jun
    If Stocks Are Risky, What About Bonds?

    If Stocks Are Risky, What About Bonds?

    • Yields should be the main factor when choosing whether to invest in bonds or stocks.
    • As yields cannot go much lower, bonds become risky too.
    • Historically any significant increase in bond yields brings to negative returns.

    Introduction

    It is almost common knowledge that in the long term stocks outperform bonds as bonds are less risky and therefore have lower yields. But if we look at the question from the title of this article from a long term perspective where stocks always outperform, then there is no risk in investing in stocks as eventually you will be rewarded with higher returns. And this is exactly the current market’s perception on the stocks vs. bonds issue. More →

    By Sven Carlin Bonds Investiv Daily Stocks
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