Making Sense Of Bonds (Podcast)

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Includes: ACP, AIF, ANGL, ARDC, BSJG, BSJH, BSJI, BSJJ, BSJK, BSJL, BSJM, BSJN, BSJO, CIF, CIK, CJNK, DHG, DHY, DRA, DRN, DRV, DSU, EAD, FALN, FHY, FREL, FRI, FTY, GGM, HIX, HYG, HYGH, HYHG, HYIH, HYLD, HYLS, HYLV, HYT, HYXE, IARAX, ICF, IVH, IYR, JCO, JNK, JQC, JRS, JSD, KBWY, KIO, LRET, MCI, MHY, MPV, NHS, NRO, PCF, PHF, PHT, PSR, REK, RFI, RIF, RIT, RNP, RORE, RQI, RWR, SCHH, SJB, SRS, THHY, UJB, URE, USRT, VLT, VNQ, WFHY, WREI, WYDE, XLRE
by: Dan Bortolotti

I've always felt that being a defenseman is the toughest job on a hockey team. Forwards score most of the goals, and goalies can steal the show with a few timely saves, but fans rarely notice a defenseman until he makes a mistake. Bonds get that same lack of respect from investors: everyone seems to forget the times they provided a safety net when stocks plummeted, but if they lose a few percentage points, they get kicked to the curb.

Part of the problem is that bonds can be difficult to understand. So, in my latest podcast, I devote the full episode to answering common questions about the asset class investors love to hate.

I previewed this episode in my last post about why bond prices fall when rates rise, and I'll continue with a series of blog posts that expand on some of the other issues discussed in the podcast:

  • If you started investing in bond ETFs about three years ago, chances are good that your holding is showing a loss on your brokerage statement. So you might be surprised to learn that broad-based bond index funds returned close to 4% annually over the three years ending March 31. I'll take another look at why many bond investors think they're losing money, even when they’re actually netting a positive return.
  • I continue to get asked why anyone would invest in bonds when interest rates have "nowhere to go but up." Does anyone still think they can forecast interest rates?
  • If you want to reduce the volatility in your portfolio but you prefer to avoid bonds, can you use cash or GICs instead?
  • Investors who focus on yield may elect to use real estate investment trusts (REITs) or preferred shares as substitutes for fixed income. These asset classes might have a role in a diversified portfolio, but not as a replacement for bonds or GICs.

Stay tuned over the next couple of weeks as I take a deeper dive into fixed income.