The Wall Street Journal recently published an article titled How You Can Survive a New Era in the Bond Market. The article suggests that investors adjust their bond allocations to tilt more towards high-yield (aka junk) bonds (both corporate and municipal) and global bonds, which tend to yield more than U.S. bonds. This advice resonates with an Op Ed by Burton Malkiel, famed author of A Random Walk Down Wall Street, at the end of 2013.
The case against bonds is straightforward. The best estimate for the expected future return from bonds is their current yield. If you hold a bond until maturity, your total return will be very close to the current yield. There are nuances to this rule. With high-yield bonds, you should expect a total return that is a bit less than the current yield due to the fact that some of these bonds will probably end in default. With bond funds, you don’t necessarily end up holding individual bonds until maturity, so the correspondence between current yield and expected return is a bit weaker. Nonetheless, with current yields as low as they are, bond investors should not expect attractive returns from most bond classes.
In part 1 of this article, I explored how you can estimate how much college will cost and how much you need to save, going forward, to accumulate enough savings to cover the amount that you plan to contribute towards your child’s college costs. One of the major variables in this calculation is what you assume about how you will invest the money that you save. While you can design a portfolio yourself, it is also worth looking at funds that combine the major asset classes into portfolios at various risk levels. Continue reading →
Guest post by Contributing Editor, Robert P. Seawright, Chief Investment and Information Officer for Madison Avenue Securities.
I haven’t seen it yet, but I love the conceit behind the indie filmSafety Not Guaranteed, which has opened to excellent reviews. The words of the title are found in a mysterious classified ad in a local paper seeking a partner for time travel. The ad also states that applicants will need their own weapons and, ominously, “safety not guaranteed.”