How To Get Great Performance Out of Bond Funds
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.
Ever since those bleak days in 2007, 2008, and again in March 2009, the concept of risk tolerance has taken on a brand-new meaning for aggressive and conservative investors alike. For the conservative investors, it meant that maintaining growth could no longer be found in bank-issued term deposits or government issued treasuries.
The aggressive investor, however, also has had to revisit asset allocation with added emphasis on the income class, which aggressive investors have traditionally shunned from their portfolios in favor of more aggressive equity class investments.
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.
The reality is that these high yield investments can be more volatile and provide more income that some of the more conservative equity funds. And the most interesting (or important, depending on your position) is that these bond funds incorporate considerably less real risk than equity funds.
In taking a look at both bond and equity funds, the lower real risk will always be with the bond funds. Where there has been a problem is in the rating companies like Moody's and Standard & Poor's, both of which came under scrutiny during the CDO collapse of 2007 and 2008. What was once an investment-grade bond two years ago is now a B rated and with the spread between government and corporate having widened over the years, only the investor stands to benefit.
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. - 23310
Ever since those bleak days in 2007, 2008, and again in March 2009, the concept of risk tolerance has taken on a brand-new meaning for aggressive and conservative investors alike. For the conservative investors, it meant that maintaining growth could no longer be found in bank-issued term deposits or government issued treasuries.
The aggressive investor, however, also has had to revisit asset allocation with added emphasis on the income class, which aggressive investors have traditionally shunned from their portfolios in favor of more aggressive equity class investments.
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.
The reality is that these high yield investments can be more volatile and provide more income that some of the more conservative equity funds. And the most interesting (or important, depending on your position) is that these bond funds incorporate considerably less real risk than equity funds.
In taking a look at both bond and equity funds, the lower real risk will always be with the bond funds. Where there has been a problem is in the rating companies like Moody's and Standard & Poor's, both of which came under scrutiny during the CDO collapse of 2007 and 2008. What was once an investment-grade bond two years ago is now a B rated and with the spread between government and corporate having widened over the years, only the investor stands to benefit.
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. - 23310
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posted by Mr. Forex at
5:46 AM
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