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Time for Income: Time for Bonds?

Marc Courteray's disclaimer at the end -- "Please Note: This article is to inform your thinking, not lead it" -- is always refreshing since the reader ends up where he/she was before reading the piece -- aware that she/he must weigh all arguments and make his/her own decision on the inflation/deflation issue. To be sure, looking ahead, relative inflation would be conducive for a better investment climate then would a persistent deflationary environment. I add a thought to consider. My reading of Seeking Alpha comments over past couple of months suggests that the majority of investors inflation will win and is not too far off. With a bias for contrarianism, this makes me more receptive to the Japanese experience argument meaning deflationary pressures will persist for at least a decade during which making money in equities or bonds for non-trading investors will be extremely limited, especially those holding 401 and the like retirement plans.

Regardless, Mr. Courtenary's assertion: "Only you can decide the best place for your money" is the only sure thing, understanding that you may be wrong. Investing is a chess game.

The Riskiness of Bonds

Felix, this time I agree with you on about every point, especially regarding being cautious about buing investor-grade corporate bonds of more than four or five years maturities. Your inflation scenario resulting from massive monetary expansion is credible, but I have one caveat: the timing of the deflation/inflation switch. No one knows, of course, but my guess. for what's its worth, is that the inflationary cycle will begin at more likely than not at least two years or three years out. So, money in investment grade corporates of three to five years do not to me appear to be putting one's capital in these assets at much risk. (Please, however, don't ask me about my AIG bonds).

Which Is Safer: Investment Grade Corporate Debt or Government Bonds?

IEric hit the homerun ball in this article. Investment grade corporate bonds purchased from August through November 2008, with maturities of one to five years, especially those of double or tripple A banks and insurance companies in comparison with US treasuries of any maturity, looking back in retrospect at the end of December would have been the best play for conservative investors. The yield to maturity ranged between six and one-half to over nine percent. The ratings on these bonds with few exceptions have remained high investment grade and their values have risen considerably in last four to five weeks. When the masses run in fear to treasuries and ignore investment grade bonds, they will surely lose, especially when they invest in maturies longer than a few months and and hold. Though yields have fallen considerably during the past month, investment grade financial corporate bonof medium duration are still a sound investment for conservative investors who do not trade.

Corporate Bonds Look Tempting

I should have added in my above comment that the bond strategy I suggested applies best, of course, to tax-deferred IRAs, etc.

Corporate Bonds Look Tempting

Though junk bonds seem attrative, no one knows how deep or long the recession (posssible depression) might last. But, tripple or double A-rated, non-callable corporate bonds, two to five years duration with YTM of between six and eight percent (e.g., G.E. bonds and notes) seem to me to represent an excellent conservative investment for an investor rather than a trader or speculator. They have little default risk while delivering a very decent return, far better than government bonds. Moreover, if two to five years from now inflation swings in and bond values drop as coupon rates rise, the proceeds upon maturity can be reinvested into higher-return bonds. I believe this is an excellent, conservative and safe strategy for those who are, or about to be, retired.