We thought this article in yesterday's Wall Street Journal provides additional support for our recent warning to avoid chasing high yields. While it is certainly tempting given the low yields available in money market funds and high quality bonds, we think that in the long run it will be better for your personal net worth to avoid the temptation.
The article also provides a little more clarity on why we prefer purchasing individual bonds or CDs for our clients’ portfolios as opposed to using a bond fund. We like the certainty of getting our principal back when a bond matures. We also like being able to use individual bonds to meet specific future liabilities, and to provide a steady stream of cash to rebalance the portfolio or simply to reinvest in another bond. At times, bond funds are the only alternative, but just remember, like all investments, they come with risks.
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A lot of investors are worried that fixed income is no longer a viable investment. This is primarily due to the global collapse of bond yields, but also investor misconceptions about seeking yield. Is there a ‘bond bubble’? If so, what can be done to avoid getting caught when it pops? You can read the full article here: http://wp.me/pPor1-Ej
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