| You've undoubtedly heard how important it is to diversify your portfolio. You should have a variety of stock types - such as small caps, large caps, international stocks, etc. - in different sectors. But a diversified portfolio should also have fixed income, precious metals and real estate holdings. This helps smooth out volatile periods in the stock market, like we've been experiencing for the past year. Until recently, the problem was that interest rates were so low that fixed income investments were simply not attractive. Treasurys paid next to nothing, and there was a time when you had to buy junk bonds just to earn 4%. For many investors, that was too much risk to earn a paltry 4%. But that's changed in a very big way in the past few months. Just six months ago, a 10-year Treasury yielded 2.6%. Today, it's 50% higher, just shy of 4%. Investment-grade corporate bonds are yielding as much as 7.5% for two- or three-year maturities, and non-investment-grade bonds yield 8% or more. Earning 7.5% on a pretty safe investment-grade corporate bond goes a long way in making up for downturns in stocks. Considering that the average annual stock market return is between 8% and 10%, earning 7.5% in a bond is pretty attractive. Over the past 93 years, there were only four times when bonds and stocks were down in the same year. Furthermore, since 1926, stocks have ended a year down 25 times, with an average loss of more than 13%. Bonds were down 15 times with an average loss of just 2.4%. Last year was a terrible year for bonds - the worst in more than 40 years. Should we expect a repeat performance this year? | 
No comments:
Post a Comment