How Bond Funds Can Outperform Equities
After the market problems of the past 3 years that invariably began with the weaknesses in the US credit system, a lot of investors have re-evaluated their risk tolerance and rediscovered the importance of a proper asset allocation model. In almost every case, investors watched their savings get shaved by half.
Those dark market days that tested new lows and personal strength pushed the ideals of risk tolerance to the surface and made both conservative and aggressive investors alike realize that risk tolerance has to be paramount. For conservative investors, that has meant no longer being able to rely on term deposits and treasuries to contribute to the growth of an investment portfolio.
For the aggressive investor, the implications were probably more grave. It meant proper diversification needed to take center stage. That meant finding opportunities in the income class, a class that might have been ignore completely in the past.
But the income class has evolved tremendously over the last decade or so. Increasingly, bond funds have taken on greater risk profiles, investing high yield investments that not only provide better income streams, but whose underlying debt respond to various market forces in much the same way that equity assets respond.
When you really get to know these high yield investments, it becomes clear that they not only provide greater volatility than some equity funds, they pay greater income and offer just as much growth potential. Meanwhile, they achieve these benefits while taking on much less risk.
In a market where all else is equal, your bond investments will always have less risk than equity investments. The problem has been in the rating systems used by companies like S&P and Moody's, both of which came under fire following the collateral debt obligations (CDOs) collapse in 07 and 08. Now you have B-rated bonds that just two years ago were solid investment-grade bonds. And with the spreads between corporate and government issues being wide, the individual investor stands to capitalize.
These high yield bond funds will actually generate greater returns than conservative equity funds. And since bonds come with less research and trading costs, there are even more savings for the investor... all with one important benefit: less risk. - 23217
Those dark market days that tested new lows and personal strength pushed the ideals of risk tolerance to the surface and made both conservative and aggressive investors alike realize that risk tolerance has to be paramount. For conservative investors, that has meant no longer being able to rely on term deposits and treasuries to contribute to the growth of an investment portfolio.
For the aggressive investor, the implications were probably more grave. It meant proper diversification needed to take center stage. That meant finding opportunities in the income class, a class that might have been ignore completely in the past.
But the income class has evolved tremendously over the last decade or so. Increasingly, bond funds have taken on greater risk profiles, investing high yield investments that not only provide better income streams, but whose underlying debt respond to various market forces in much the same way that equity assets respond.
When you really get to know these high yield investments, it becomes clear that they not only provide greater volatility than some equity funds, they pay greater income and offer just as much growth potential. Meanwhile, they achieve these benefits while taking on much less risk.
In a market where all else is equal, your bond investments will always have less risk than equity investments. The problem has been in the rating systems used by companies like S&P and Moody's, both of which came under fire following the collateral debt obligations (CDOs) collapse in 07 and 08. Now you have B-rated bonds that just two years ago were solid investment-grade bonds. And with the spreads between corporate and government issues being wide, the individual investor stands to capitalize.
These high yield bond funds will actually generate greater returns than conservative equity funds. And since bonds come with less research and trading costs, there are even more savings for the investor... all with one important benefit: less risk. - 23217
About the Author:
MutualFundSite.org is an informational website that shows people Where To Invest and also helps people Learn To Invest properly.
posted by X - Men @ 5:00 AM
0 Comments
0 Comments:
Post a Comment
Subscribe to Post Comments [Atom]
<< Home