Bond Thoughts - IV

| March 21, 2018
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Another risk to investing in bonds is reaching for yield. This is something investors have struggled with since interest rates were slashed to zero a decade ago.

While it is nice to pick-up additional income, it does come with risk.

According to Morningstar, four of the five highest yielding sectors within fixed income have a key danger that could undermine why you own bonds in the first place: Diversification.

The correlation between the following and the S&P 500 over the past three years is statistically significant:

  • High Yield Corporate Bonds
  • Bank Loans
  • Multisector Bonds
  • Nontraditional Bonds

Correlations range between 0.60 to 0.80, meaning they tend to act like stocks!

The two primary reasons to own bonds are:

  1. Diversification
  2. Income

Yes there are risks to owning bonds, but just make sure when you want a bond to act like a bond, it will!


Stay Tuned, Disciplined & Patient! {TJM}

The Investor & Character Equation (ICE) | S + R = O


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