Money & Investing – Banks.com

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Bond investing is one way to help shore up your investment portfolio with less risky assets. And, in the past couple of decades, Treasury investments have been great bets, earning better annualized returns than the stock market. But things are changing as the economic climate changes. Here is what CNN Money reports about a bond bear market:

As rates began to rise in 2009 — thanks in part to an improving economy and growing inflation fears — long-term government bond funds took it on the chin. They fell nearly 12% between the start of the year and mid-November.

Is this the start of a bear market in Treasuries? “It’s certainly possible,” says Peng Chen, president of the investment consulting firm Ibbotson Associates, “especially if inflation rises and the Federal Reserve has to raise interest rates aggressively to combat it.”

In order to keep bonds in your portfolio, you might try some strategies that can limit your exposure to losses. CNN Money suggests these ideas to help you protect make the most of your Treasury investments:

• Avoid funds and go with individual issues.
• Ladder your bond investments.
• Pare back long term bond exposure, and avoid bonds that mature in more than seven years.
• Consider TIPS.
• Think about U.S. agency debt (like Ginnie Maes)

Of course, you can also consider other types of bonds, if you don’t mind the slightly higher risk associated corporate and municipal bonds. You can also turn to foreign bonds. If you have the risk tolerance for it, emerging market bonds have the potential to provide solid returns over the next few years.

Whatever you do, though, make sure that you take the time to consider your options, and what you hope to accomplish with the bond section of your investment portfolio.

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.

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The news that consumer confidence and retail sales in November are both higher is helping things in terms of risk today in investing. Also helping matters is the fact that China continues to surge forward. Many feel that the global economic recovery will be led by China, and so far the news out of China is confirming this idea. Stocks are moving higher, as are Treasury yields.

Stocks are modestly higher, since the good news is balanced by continued concerns about U.S. fundamentals and the fact that economic recovery in America is likely to be gradual. But investors are excited about the fact that consumers appear ready to start spending again. With consumer spending making up such a large portion of economic activity, it is little surprise that it is such an important consideration.

Treasury yields are also providing something attractive. Yields move inversely to prices, and prices are down, so yields — especially on 10-year bonds — are up. MarketWatch reports on the reasons behind the recent Treasury results:

Investors tend to buy Treasurys as safe places to protect principal if the economy is slowing. When the economic outlook improves, bonds lose some appeal.

With investors showing more confidence, Treasurys are not in demand. Therefore, higher yields are necessary in order entice investors. (It is also worth noting that mortgage rates are connected to 10-year Treasury bonds, so we could see an increase in mortgage rates soon.)

There are a lot of interesting investment opportunities right now, and with the end of the year approaching, time to look at the tax implications of different investments, comparing the tax advantages of bonds vs. stocks, and re-adjusting your investment plan.

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.

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One of the questions that many people have when it comes to look at how much return they are getting on their bonds has to do with the way the information is presented on the Savings Bond Wizard offered by the Treasury Department. One point of confusion has to do with the way I-bonds are presented, especially with regard to the term “yield.”

When the Wizard uses the term “yield”, it is referring to the average rate of return up to the present point. It is not actually referring to the current yield on an I-bond. It means the average rate of return up to the current point, over the life of the bond. When you see the “rate”, though, it means the current six-month period rate. I-bonds have two different rates, with a fixed rate for the life of a bond, and the inflation rate, which is adjusted in May and again in November of each year. So, if the current rate is higher than the yield, it is an indication that the rate is up in comparison to the average yield you have had over the life of your I-bond.

An I-bond is just one of the Treasury bonds available for investing. These are loans you make to the government, and the government pays you interest. I-bonds are protected from inflation. You can purchase them through Treasury Direct. It you use an electronic account, you only need a minimum of $25 to get started. Bonds offer relatively low returns, but they aren’t too bad. The current rate on I-bonds is 3.36% through the end of April — not too shabby for such an investment.  Better than a high yield savings account.

Bonds can make a good addition to an investment portfolio in need of a little shoring up for safety, but it is important to realize that you will get slow growth on bonds, and that if you want higher returns, you will need to balance things with other types of investments.

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.