| Bonds Online |
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| 5/10/2013Market Performance |
| Municipal Bonds |
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S&P National Bond Index
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3.00% |
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S&P California Bond Index
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2.96% |
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S&P New York Bond Index
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3.13% |
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S&P National 0-5 Year Municipal Bond Index
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0.70% |
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| S&P/BGCantor US Treasury Bond |
400.09 |
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| Income Equities: |
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| Preferred Stocks |
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S&P U.S. Preferred Stock Index
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848.03 |
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S&P U.S. Preferred Stock Index (CAD)
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636.26 |
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S&P U.S. Preferred Stock Index (TR)
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1,701.05 |
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S&P U.S. Preferred Stock Index (TR) (CAD)
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1,276.26 |
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| REITs |
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S&P REIT Index
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174.07 |
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S&P REIT Index (TR)
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425.30 |
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| MLPs |
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S&P MLP Index
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2,469.58 |
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S&P MLP Index (TR)
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5,428.50 |
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See Data
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Boost Your Returns: Bonds |
SmartMoney - Sept. 17, 2009 - by Elizabeth O'Brien
FOR A GROWING NUMBER of Americans, investing is heading into a new stage, with fear receding and a little more boldness taking its place. Market pros say that with the economy continuing to show signs of life, consumers who tiptoed into the markets earlier this year are now wading in up to their hips. Since Memorial Day weekend, Americans have taken almost $200 billion out of money-market funds, helping stocks rise by more than 50 percent since the spring. Now as that rally slows down, some savvy investors are looking for new ways to juice their returns, without being reckless. “Clients are getting antsy,” notes Gary Stroik, chief investment officer at wealth manager WBI Investments. “They’re sick of getting almost nothing on their money.”
In most cases, the higher yields investors are looking for can actually come from plain-vanilla investments like dividend-paying stocks, bonds and even CDs—though they’re usually more volatile than your typical T-bills and bank accounts. If investing is like car ownership, following these strategies can be like buying a stodgy minivan and then installing a souped-up engine. A handful of solid companies, for example, are paying dividends to shareholders that can range from 5 percent into the double digits. Some corporate bonds are paying investors yields of more than 10 percent; mutual funds built around those bonds have attracted $17.5 billion in new money in 2009. Another surprisingly popular option: higher-paying structured certificates of deposit. Investments in those products have soared 13 percent in the past year, to $37.6 billion.
Of course, higher gains always come with greater risks, and investing pros say they’re telling clients to devote only a small part of their portfolios to these approaches. Promising as their gains may be, for example, those high-yield bonds are better known as “junk,” so called because companies that issue them are often on shaky financial footing. A high dividend for a stock can also be a sign of a company in trouble, and as for those high-paying CDs, many come with a novella’s worth of fine print that could keep an investor from scoring a big payday. So we’ve asked planners, strategists and money managers for their advice about striking the right balance between aggressiveness and safety. The goal: getting high-octane performance from a minivan portfolio, without disabling the air bags.
Bonds
For proof that the economy’s still a bit out of whack, look no further than the bond market. For years Treasurys—U.S. government bonds—were a synonym for white-bread-bland stability, a danger-free way to bolster your portfolio. But now some experts see them as one of the worst investments out there. Blame last year’s economic crisis for turning tradition upside down. When demand for a bond grows, its price goes up, and its yield—the rate of return—goes down. During the crash, investors looking for a safe haven bought Treasurys in record numbers. Now many professionals think the bonds pay far too little interest to keep up with future inflation; five-year Treasury notes were recently paying less than 2.5 percent a year.
Surprisingly, many people are finding more income in an investment whose reputation is almost as mild as Treasurys’—municipal bonds. Munis pay for public-sector projects like schools and sewers, which has made them favorites for years among civic-minded mom-and-pop investors. They also have a return-boosting edge: The interest they pay is often exempt from federal and other taxes. For an investor in the top federal income tax bracket, a muni bond that yields just over 5 percent pays the same, after taxes, as a traditional bond that pays 8 percent. Although the struggling economy has hurt tax revenue for the states and local governments that issue these bonds, most pros expect very few will have problems making payments. And if tax rates go up in the near future, as many economists expect, municipal bonds will only become more attractive, says Cliff Gladson, comanager of the USAA Tax-Exempt Intermediate-Term fund (USATX).
To get munis, however, most small investors need to buy bond funds that specialize in them, and prices for such funds can take roller-coaster drops if the economy stumbles. But there’s a consolation prize for people like Shaun Eli Breidbart, a New York comedian: Most funds pass some interest directly to shareholders. After losing heavily on stocks last year, Breidbart bought shares in a Vanguard fund focusing on New York state munis; today it pays him 4.2 percent a year on his $36,000 stake. Right now he’s reinvesting that income in the fund, but as a self-employed person, he’s glad to know he can fall back on it if he hits a rough patch. “It gives me peace of mind,” he says.
Munis aren’t the only bonds benefiting from the new economy. Junk bonds, those symbols of reckless, Gordon Gekko–like excess, have been enticing more investors too. What makes these bonds “junky” is that experts think there’s a higher-than-average chance the companies that issue them won’t be able to repay them. The result is that junk bonds have to pay higher interest rates to lure buyers—recently, they averaged 9.4 percent. Still, many investors say the rewards of junk make the risks worthwhile. Kristopher Johnson, a financial planner in Wheaton, Ill., has been moving 5 percent of his clients’ portfolios out of stocks and into high-yield bond funds like Artio Global High Income (BJBHX). If the economy takes a turn for the worse, Johnson says, a well-chosen portfolio of high-yield bonds won’t lose as much as stocks.
Of course, some investors aren’t comfortable buying anything associated with the word junk. No worries: Many money managers are fueling higher returns by buying corporate bond funds that focus on so-called intermediate-term bonds. Yields on those bonds are lower than junk but higher than most Treasurys and short-term bonds.
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| Stuff to look at |
Yield and Income Newsletter: A must have for income investors. subscribe NOW
S&P Commentary and Newsletters: S&P
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Income Security Recommendation January 2013 Issue.
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