We expect the stock market to show occasional volatility, but even the staid bond market has been delivering some jolts recently.   #-ad_banner-#Rising bond price volatility reflects the growing concern about the timing, frequency and magnitude of upcoming interest rate hikes by the Federal Reserve. The risk of loss of principal has rarely been higher, especially for income investors that have boosted their exposure to high-yield corporate debt and other riskier types of bonds, in search of better returns.   With global political and economic turmoil apt to worsen, investors are understandably looking to the world’s leading money managers… Read More

  We expect the stock market to show occasional volatility, but even the staid bond market has been delivering some jolts recently.   #-ad_banner-#Rising bond price volatility reflects the growing concern about the timing, frequency and magnitude of upcoming interest rate hikes by the Federal Reserve. The risk of loss of principal has rarely been higher, especially for income investors that have boosted their exposure to high-yield corporate debt and other riskier types of bonds, in search of better returns.   With global political and economic turmoil apt to worsen, investors are understandably looking to the world’s leading money managers for insight into how best to navigate increasingly choppy markets. In the fixed-income arena, you might want to keep a close eye on 55-year-old Jeffrey Gundlach, CEO of Los Angeles-based DoubleLine Capital.   Gundlach is widely seen as the new “bond king,” replacing Bill Gross. That bond fund manager — and bond market prognosticator — had often been seen as the “Warren Buffett of bonds.” The passing of the torch to Gundlach occurred after Gross stepped down as chief investment officer of the Pacific Investment Management Company (PIMCO), a firm he co-founded in 1971.   DoubleLine, which Gundlach co-founded in… Read More

When companies such as Cisco Systems, Inc. (Nasdaq: CSCO) and Microsoft Corp. (Nasdaq: MSFT) began issuing debt in the past decade, some investors were left scratching their heads. After all, these companies carried a hefty amount of cash on their balance sheet and seemingly had no use for more money. #-ad_banner-#The key reason: much of their cash was locked up in foreign banks. These and many other companies have been playing a waiting game with the U.S. government. The government has sought to tax those foreign-earned funds when they are repatriated back home. For many companies, we’re talking about a… Read More

When companies such as Cisco Systems, Inc. (Nasdaq: CSCO) and Microsoft Corp. (Nasdaq: MSFT) began issuing debt in the past decade, some investors were left scratching their heads. After all, these companies carried a hefty amount of cash on their balance sheet and seemingly had no use for more money. #-ad_banner-#The key reason: much of their cash was locked up in foreign banks. These and many other companies have been playing a waiting game with the U.S. government. The government has sought to tax those foreign-earned funds when they are repatriated back home. For many companies, we’re talking about a tax rate in excess of 30% (offset by any amount of taxes already levied by foreign entities on those earnings). These companies figured they would just bide their time until the government agreed to a lower tax rate. Well, that time may have finally come. Reports are circulating that the Obama administration, as part of a broad corporate tax overhaul, will offer a lowered tax rate for repatriated funds. President Obama’s reported opening gambit: a 14% tax rate on cash brought home now and a 19% tax rate on future foreign-sourced profits. Congressional Republicans will likely counter-offer with a lower… Read More

  My parents are aging rapidly. Whenever I would bring up the topic of long-term care insurance with my dad, he would laugh. I was his long-term care policy, he’d say.   He might be on to something.   #-ad_banner-#Aging Americans, especially baby boomers, are facing a conundrum: longer life spans thanks to advances in medicine and extremely low interest rates are changing the retirement math.   Don’t look for either situation to change any time soon. In fact, low rates may stay in place for another twenty years or so.   Can we blame low rates on a sluggish… Read More

  My parents are aging rapidly. Whenever I would bring up the topic of long-term care insurance with my dad, he would laugh. I was his long-term care policy, he’d say.   He might be on to something.   #-ad_banner-#Aging Americans, especially baby boomers, are facing a conundrum: longer life spans thanks to advances in medicine and extremely low interest rates are changing the retirement math.   Don’t look for either situation to change any time soon. In fact, low rates may stay in place for another twenty years or so.   Can we blame low rates on a sluggish economy? Not really. The Fed? Not yet.  Looks like aging populations are a driving factor.   Retirees depend on conservative, high quality, fixed income investments to supply predictable income during their retirement years. Typically that means U.S. Treasury securities, high quality bonds or investments holding those types of securities such as mutual funds or exchange traded funds (ETFs).   The same goes for the institutions that manage those income streams, such as pension funds or insurance companies. Those entities need to lock in interest rates on a long-term basis in order to manage their long-term liabilities.   With a huge… Read More

I have a relative, who is well into her 70’s, and she absolutely loves stocks. Can’t get enough of them. Any other asset class is simply too boring. #-ad_banner-#But she’s making a huge mistake. At her age, her retirement portfolio should also have ample exposure to bonds and other stable assets. After all, the next 40% stock market pullback (which seems to happen nearly once a decade) can always appear without much notice. Yet it’s hard to make a case against stocks and for bonds with such people. After all, bonds… Read More

I have a relative, who is well into her 70’s, and she absolutely loves stocks. Can’t get enough of them. Any other asset class is simply too boring. #-ad_banner-#But she’s making a huge mistake. At her age, her retirement portfolio should also have ample exposure to bonds and other stable assets. After all, the next 40% stock market pullback (which seems to happen nearly once a decade) can always appear without much notice. Yet it’s hard to make a case against stocks and for bonds with such people. After all, bonds offer insulting yields right now. Annuities don’t fare much better. But these are anomalous times. The value of bond yields will eventually increase, and for long-term focused investors, it’s crucial that a constantly changing mix of assets make up your portfolio, so risk is reduced as you get closer to retirement. That’s the clear concept behind target date funds, which automatically adjust portfolios as the years pass. I discussed these funds roughly two years ago on our sister site InvestingAnswers.com. I encourage you to read that piece to get a key sense of the approach… Read More

  When investors hear the word “bonds,” they usually think safety. But maybe it’s time to re-evaluate.   #-ad_banner-#With the Federal Reserve set to start raising interest rates from historic lows soon, bonds could be riskier now than at any time in the past 30 years. Even just a 50-basis-point gain in rates could knock 3% off the value of a bond fund that tracks the overall bond market, since bond prices move in the opposite direction of yields.   Losses could be quite a bit steeper in more speculative segments of the bond market, including the high-yield or “junk”… Read More

  When investors hear the word “bonds,” they usually think safety. But maybe it’s time to re-evaluate.   #-ad_banner-#With the Federal Reserve set to start raising interest rates from historic lows soon, bonds could be riskier now than at any time in the past 30 years. Even just a 50-basis-point gain in rates could knock 3% off the value of a bond fund that tracks the overall bond market, since bond prices move in the opposite direction of yields.   Losses could be quite a bit steeper in more speculative segments of the bond market, including the high-yield or “junk” portion, which has enjoyed an extended popularity streak. As the Fed’s multi-year stimulus program progressively compressed yields on Treasuries and other safe government bonds, income investors increasingly flocked to junk bonds (higher-interest debt issued by financially vulnerable companies) for better returns despite the higher default risk.   Yet, the bond backdrop is poised for a change. Imminent rate increases, concerns about an energy sector high-yield debt bubble and weakness in the global economy, means it may be time to tread especially lightly in high-yield bonds. There are a couple ways to do this, starting with reducing exposure to the asset class. Read More

  I will never forget what a key mentor told me earlier in my investing career, “You can chase billion-dollar money flows on a daily basis or you can look to trillion-dollar themes that develop over years.”   #-ad_banner-#That one lesson is probably responsible for the majority of my investing profits.   Sure, there is  money to be made by following near-term trends and analysis. The problem is that you will always need to be in and out before the trend reverses. Without the power of a trillion-dollar theme, the trend invariably reverses eventually.   Investments with the power of… Read More

  I will never forget what a key mentor told me earlier in my investing career, “You can chase billion-dollar money flows on a daily basis or you can look to trillion-dollar themes that develop over years.”   #-ad_banner-#That one lesson is probably responsible for the majority of my investing profits.   Sure, there is  money to be made by following near-term trends and analysis. The problem is that you will always need to be in and out before the trend reverses. Without the power of a trillion-dollar theme, the trend invariably reverses eventually.   Investments with the power of a trillion-dollar theme might not deliver quick gains, the kind you can score riding  the latest short-term trend. But massive support coming from a big picture theme will keep prices going higher over the long-term. It worked for emerging market investors with a combined 2004 GDP of $3.9 trillion in the four BRIC countries but with growth that was adding nearly a trillion each year. Even after five years of sideways trading, the iShares MSCI Emerging Markets (NYSEMKT: EEM) has annualized 12.8% since its 2003 launch. Apple, Inc. (Nasdaq: AAPL) is another solid example. Starting in 2007, when… Read More

Wall Street wisdom tells us not to try to catch a falling knife. Stocks in strong downtrends are more likely to keep falling than suddenly turn around. However, unless a stock is heading to zero, it will eventually find its footing.  #-ad_banner-#That time seems to be at hand for international oil giant BP plc (NYSE: BP). There is no doubt that my fascination with this stock stems from everyone’s natural tendency to want to jump on an apparent bargain. After trading above $53 in the middle of last year, BP dipped below $35 in December before bouncing a bit. That’s… Read More

Wall Street wisdom tells us not to try to catch a falling knife. Stocks in strong downtrends are more likely to keep falling than suddenly turn around. However, unless a stock is heading to zero, it will eventually find its footing.  #-ad_banner-#That time seems to be at hand for international oil giant BP plc (NYSE: BP). There is no doubt that my fascination with this stock stems from everyone’s natural tendency to want to jump on an apparent bargain. After trading above $53 in the middle of last year, BP dipped below $35 in December before bouncing a bit. That’s a 35% decline in less than six months.  The next thing that piques my interest is its beefy dividend yield of 6.4%. In a market where 10 years of waiting gets you a whopping 1.8% in Treasury notes, the hunt for income is a popular pastime.  But again, just because a stock is low in price does not mean it cannot go even lower, and that would eat up the dividend rather quickly. However, in BP’s case, the technicals suggest a relatively low risk-to-reward setup is now in place.   For starters, downside momentum is waning. While the… Read More

As part of our multi-part series about dividend stocks, we are taking a comprehensive look at the wide range of dividend strategies that investors are currently deploying. For example, in part two of the series, I looked at stocks with dividend yields in excess of 4%, which also have a built in margin of safety. #-ad_banner-#Of course such stocks carry a clear flaw: Although interest rates now appear to remain quite low in 2015, they are bound to eventually rise higher in coming years. And as the yields on fixed income investments start to rise, they will start to draw… Read More

As part of our multi-part series about dividend stocks, we are taking a comprehensive look at the wide range of dividend strategies that investors are currently deploying. For example, in part two of the series, I looked at stocks with dividend yields in excess of 4%, which also have a built in margin of safety. #-ad_banner-#Of course such stocks carry a clear flaw: Although interest rates now appear to remain quite low in 2015, they are bound to eventually rise higher in coming years. And as the yields on fixed income investments start to rise, they will start to draw funds away from stocks that are likely to produce only modest dividend growth. That’s why some investors don’t focus on the dividend yield, but instead on dividend growth. The appeal is self-evident: stocks that can produce income streams that march higher and stay ahead of comparative fixed-income yields, promise more robust long-term returns. Not only do such stocks, many of which yield 2%-to-4%, produce a higher payout than bonds, but they also hold the promise of solid price appreciation if they are undervalued. In contrast, bond yields are unlikely to fall much more, and as they eventually rise, bond prices… Read More

As I noted in my preview of this multi-part look at dividend payers, few investors are pleased with the fact that 10-Year Treasuries yield is less than 2%. #-ad_banner-#Not only is that yield insufficient to generate acceptable income streams, but investors could see bond-oriented investments lose value when rates finally start to rise. To be sure, fixed-income rates are unlikely to budge much in 2015. The Fed may start to hike the Fed funds rate by mid-year, but they’ll be moving slowly. In normal times, a boost in the Fed funds rate would also have an impact on long-term rates… Read More

As I noted in my preview of this multi-part look at dividend payers, few investors are pleased with the fact that 10-Year Treasuries yield is less than 2%. #-ad_banner-#Not only is that yield insufficient to generate acceptable income streams, but investors could see bond-oriented investments lose value when rates finally start to rise. To be sure, fixed-income rates are unlikely to budge much in 2015. The Fed may start to hike the Fed funds rate by mid-year, but they’ll be moving slowly. In normal times, a boost in the Fed funds rate would also have an impact on long-term rates as well, which I noted in 2013 when discussing the yield curve.  But these are not normal times.  So the rate on the 10-Year may not move all that much, even as short-term rates rise. That’s why dividend stocks will likely remain in vogue once again this year. There are several ways to approach these stocks, and today, I am focusing on stocks that carry yields in excess of 4.0%, and equally important, are extremely likely to maintain stable payouts. To be sure, the ongoing bull market has lifted stock prices to such an extent that dividend yields in excess… Read More

As market strategists laid out their forecasts for 2014, they got many things right. Most predicted that the stock market would post another year of gains, unemployment rates would keep falling, corporate profit margins would stay near all-time #-highs and Europe would remain the weak spot in the global economy. But these strategists also missed one huge factor: Interest rates. While it was widely assumed that a firming economy and the eventual termination of the Fed’s quantitative easing (QE) program would lead a steady rise in interest rates, the bond market had a different plan. The precipitous… Read More

As market strategists laid out their forecasts for 2014, they got many things right. Most predicted that the stock market would post another year of gains, unemployment rates would keep falling, corporate profit margins would stay near all-time #-highs and Europe would remain the weak spot in the global economy. But these strategists also missed one huge factor: Interest rates. While it was widely assumed that a firming economy and the eventual termination of the Fed’s quantitative easing (QE) program would lead a steady rise in interest rates, the bond market had a different plan. The precipitous fall in the 10-Year Treasury Yield is surely the most unexpected trend of the past year.   Frankly, it’s hard to square a firming economy and falling interest rates. Economic textbooks suggest that’s not possible. But these textbooks often ignore exogenous conditions. The fact that Europe is gasping for air and the Chinese economy is cooling off means that domestic economic strength is being trumped by international economic weakness. #-ad_banner-#Another key factor: the world is awash in excess capital, as the top 1% of the global economy generates billions in new wealth each year. Much of the global elite… Read More