More on How to Invest for Fixed Income

After I posted the blog about the false benchmarks used for bonds I received a few calls asking what to do. I have two responses to this.

1. Buying bonds has always been tough, but right now it is even tougher. The 10-year corporate bond rate is around 2.75% and the 20-year rate is around 3.75%. Both seem low. I feel we are in a transition period in that there is a relatively flat yield curve, meaning that there is very little “compensation” for longer period risk. I think a reasonable strategy right now is a holding pattern with one year or two-year bank certificates of deposit. However, doing this will provide very little return over the inflation rate meaning you would be pretty flat when you measure your return against buying power. Also, what you do would depend on whether you need to spend the interest or are adding it to your principal, and if the investments are in your individual name or in a tax-deferred or tax-free accounts such as an IRA or 401k or a Roth account. This is a confusing issue and has many moving parts. It shouldn’t be that difficult, but it is. Exacerbating the situation is the pressure from many asset managers pushing clients into intermediate-term bond funds which I think are inappropriate for many investors. To deal with it, you should discuss it with your financial advisor and develop what you think is the best way to attain your goals, keeping in mind that it is mandatory that you understand everything that is being recommended.
2. I relooked at my previous blogs on fixed income investing and can tell you that I like what I wrote and believe that each one clearly explains the issues covered in the blog. I organized them and put them in a single file that I will email it to you if you write Bond Blogs in the RE: section and email me at [email protected]. It contains 18 blogs on 20 pages. For those interested in bonds and the fixed income, it is scintillating; for others, I recommend it if you find yourself unable to sleep.

My top 3 rules for investing and financial planning:

Rule #1 – Never do anything that you do not fully understand. You need to understand how you can make money and how you could lose on it and what is likely to occur for both to happen. If you do not understand what you are being advised to do, assume the person providing the advice is wrong and do not do it. Not doing something might cause the loss of an opportunity. Doing the wrong thing might cause the loss of your money. It is usually better to lose an opportunity than money.
Rule #2 – See rule #1.
Rule #3 – See rule #2.

Do not hesitate to contact me with any business or financial questions at [email protected] or fill out the form below.