 |
As I’ve made clear plenty of times before … I consider solid dividend-paying stocks to be the best long-term income investments on the planet.
But I also keep a watchful eye on other asset classes, including the various flavors of bonds.
That’s because bonds both compete with dividend stocks for investment dollars and can also afford an income portfolio with healthy diversification.
If you’re a Dividend Superstars subscriber, you know that I often talk about bonds in your monthly issues. But the last time I mentioned them here in Money and Markets, was back in May.
My conclusion then: I said it looked like a good time to start nibbling on various categories of corporate bonds.
The basic premise was that yields looked relatively good, and the idea of above-average defaults was already baked into the cake.
I also felt that corporates were certainly a better way to go than Treasuries at the time.
Since Then, Nearly All Classes of Corporate Bonds
Have Produced Good Returns for Investors …
As you’d expect, the returns have run the gamut from “decent” to “pretty darn good for bonds!”
For example, you might recall that I said Vanguard mutual funds were an easy and cheap way to play individual bond classes.
Here’s how some of the funds I mentioned have performed since that column on May 5:
Vanguard’s Intermediate-Term Corporate fund (VFICX) has gained about 10 percent …
And the Vanguard High-Yield Corporate fund (VWEHX) is up about 8 percent.
Remember, these are bond funds. You don’t normally expect 5 percent or 10 percent returns in just a few short months.
What’s more, I am not even counting the yields. That’s why most people buy bond funds in the first place!
So What Do I Think Now That This Rally Has Happened?
After the runup in these funds, yields have come down substantially.
For example, the VFICX now has a yield of 4.63 percent and the VWEHX yields 8.5 percent. The first time I mentioned the VWEHX in Dividend Superstars — in March — it was yielding more than 11 percent!
In short, I can no longer say it’s a great time to be committing a lot of new money to these funds.
That doesn’t mean I think they’re overpriced, just more fairly valued. You could certainly continue dollar-cost averaging into them, or at least reinvesting your current payments as a way of building a bigger position.
After all, if the economy does continue to stabilize, I would expect additional upside, particularly from corporate and junk. But my point is that these categories are no longer screaming bargains.
As far as inflation-protected bonds like TIPs … I remain positive on them as a great way to hedge against a future inflation shock.
I’ve been saying it often, but the Fed is really walking a major tightrope at the moment. They need to keep pumping in money to stabilize the economy … but they’re risking serious inflation down the line.
One minor slip-up in their exit strategy and things could get out of hand quickly.
For all these same reasons, I am still negative on longer-dated U.S. Treasuries. Like Mike Larson, I remain concerned that we have only seen the beginning of a bursting bubble in government bonds.
A crack in that market would send rates up sharply. And only then would I recommend starting to build a substantial position in longer-duration Treasuries.
Best wishes,
Nilus
P.S. Heck, MANY recommended stocks in the Dividend Superstars portfolio are currently yielding 4 percent or more. A few are even paying out 8 percent or 10 percent a year in steady dividend checks. And those payments have the potential to increase year in and year out! To learn more about the companies I’m recommending, and why they run circles around bonds, click here.
About Money and Markets
For more information and archived issues, visit http://legacy.weissinc.com
Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Nilus Mattive, Claus Vogt, Ron Rowland, Michael Larson and Bryan Rich. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Kristen Adams, Andrea Baumwald, John Burke, Amy Carlino, Selene Ceballo, Amber Dakar, Dinesh Kalera, Red Morgan, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.
Attention editors and publishers! Money and Markets issues can be republished. Republished issues MUST include attribution of the author(s) and the following short paragraph:
This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://legacy.weissinc.com.
From time to time, Money and Markets may have information from select third-party advertisers known as “external sponsorships.” We cannot guarantee the accuracy of these ads. In addition, these ads do not necessarily express the viewpoints of Money and Markets or its editors. For more information, see our terms and conditions.
|
© 2009 by Weiss Research, Inc. All rights reserved. |
15430 Endeavour Drive, Jupiter, FL 33478 |
