Since 2009, market volatility has sent many investors running to U.S. Treasurys for safety, which raised concerns that a “bond bubble” might be forming. However, investors who understand the dynamics of our current economy might more appropriately compare bonds to a tire with a slow leak – no matter how much you pump it up, it isn’t likely to carry you fast or far. Below we will provide an objective look at Treasurys and the alternatives available to those seeking more immediate or reliable yield.
What You Should Know:
1. All investments carry risks.
Investments in Treasury debt are widely considered “riskless” from a default standpoint. However, anyone who sells an issue before maturity risks loss of principal.
2. “Predictability” and “safety” aren’t necessarily the same.
Treasurys have been perceived as a safe haven in times of volatility because their prices don’t typically fluctuate as dramatically as equities. However, the real yield on a U.S. bond is its return adjusted for inflation. So if you measure investment safety in terms of actual value over time, consider:
3. Other investments can help mitigate the risks.
If what you’re seeking is income from your investment portfolio, there are alternatives that your financial advisor can help you understand:
Floating rate preferreds are generally linked to the three-month U.S. dollar Libor with additional basis points. Fixed-to-floating rate preferreds have a fixed coupon for a certain time period (usually either five or 10 years) and then a floating rate at the end of the period. They are generally linked to the three-month U.S. dollar Libor plus pre-stated additional basis points.
What you should do now:
In today’s volatile and uncertain environment, a desire for safety is perfectly natural. But if you rely on your investments for income, being safe and smart means understanding value over time. We recommend you review your portfolio with your Financial Advisor to ensure a proper balance of investments designed to work toward your long-term goals and needs.
Article provided by Robert W. Baird & Co. with the authorization of its author for Evan Guido, Vice President, Financial Advisor at the Sarasota office of Robert W. Baird & Co., member SIPC. The opinions expressed are subject to change, are not a complete analysis of every material fact and the information is not guaranteed to be accurate.
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Evan R. Guido
Vice President of
Private Wealth Management
One Sarasota Tower, Suite 806
Two North Tamiami Trail
Sarasota, FL 34236-4702
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www.EVANGUIDO.com
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