Why Own Bonds in This Low Interest Rate Environment?- Season 2: Episode 9
The standard, cookie-cutter portfolio often consists of just three main assets: stocks, bonds and cash. One may argue that this is not enough diversification, but that discussion aside, some investors seem to find themselves these days replacing some of their “riskier” stock portfolio with the relative safety of US Government bonds.
But interest rates are at historic lows, and the reward for owning bonds is minimal, at best. Are people really satisfied with a 10-year rate of return that’s currently paying less than 1 percent annually? Maybe: but there may also be some bond alternatives available to you that pay a bit more than that.
What are these bond alternatives, and how do you know if their potentially suitable for you? Listen to this week’s edition of Managing Your Financial Future with Rick “the Professor” Plum and Johnny Dean to learn about ways you may be able to squeeze a little more juice from the orange. Also: a few more of your emails are answered!
It is important to keep in mind that investments in fixed income products are subject to liquidity (or market) risk, interest rate risk (bonds ordinarily decline in price when interest rates rise and rise in price when interest rates fall), financial (or credit) risk, inflation (or purchasing power) risk and special tax liabilities. Interest may be subject to the alternative minimum tax.
Diversification strategies do not ensure a profit and cannot protect against losses in a declining market.