The Motley Fool Discussion Boards
Investing/Strategies / Bonds & Fixed Income Investments
|Subject: Re: $950K ... now what?||Date: 1/10/2013 1:08 PM|
|Author: altstrat91||Number: 34643 of 35397|
the most important objective at this stage of the game is to maintain the preservation of your principal capital while driving a income stream to help fulfill your expenses.
unfortunately this is one of the worst times to put new money to work with respect to investment grade investments. across the entire rainbow of fixed income, including preferreds, every asset and class is trading at insane premiums. i was looking at a bunch of preferreds last week and noticing lows in the $20 or $22 range and now 52 or 104 weeks later, they are trading at $26, $27 and some even higher. the greater the asset credit quality with higher interest rate, the greater the current market price. there are preferreds trading in the $30+ price range.
eventually the current interest rate trend will reverse which will ultimately drive down current asset values. a guaranteed 3% rate of return in this environment for investment grade assets is actually nothing to sneeze at.
if i were you, my strategy would be putting forth a signifcant allocation towards an 18 month or so time horizion. you can pick up some really great high quality investment grade corps right now with 2015 redemptions in the 1.5%-1.9% range.
in other words, let the current cycle play itself out for now. why buy a mutual fund or whatever that gives you a 5% yield but in 24 months or less, you could potentially take a double digit paper loss hit on the principal investment.
one other specific area you should explore are floating rate type assets. met life offers a preferred share A class that has a guaranteed minimum 4% annual pay out, but as interest rates rise, so does the payout on this asset. which means, unlike most other preferred stocks that will go down in price as interest rates rise, this floating rate share of met life will buck the trend.
there is also another floating rate exchange traded asset from AT&T that has bonds as the underlying, with ticker symbol GYC. however this has a redemption date of 20 something years from now, so might not suit your specific scenario.
the only type of mutual funds i would consider at this stage of the game if you had too, would be one that has an allocation for both long and short positions in bonds. otherwise if you take a net long position in any fixed income asset or class, it is simply not worth the risk reward here at this stage of the cycle.
remember we have had a rally now in corps for 4+ years. i recall selling in 2011 a bunch of zero coupon strips for a ridiculous price vs. where i bought them in 2009. you should see what they are trading at now.
think in terms of the nasdaq rally. would you have wanted to put new money to work in 1999? 1996 would have probably worked out a little better. kind of a similar theme right now in corps and other bonds.
|Copyright 1996-2014 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us|