High-Octane Fuel for Stocks
Since I graduated from Shaker Heights High School in 1959, the most important driver of long-term stock market returns has been the direction of interest rates. Bonds compete with stocks in investors’ portfolios. When interest rates rise, the prospective return on bonds goes up. In order for stocks to remain competitive with bonds, their prospective returns must also rise. Prospective stock returns rise when prices and valuations fall. Think of the dividend yield on a stock. If you own a $100 stock that pays a $4 annual dividend, you are looking at a 4% yield. If the price of that stock falls... [Read the full story]
An Alternative to Ultra-Low Treasury Yields
The short end of the yield curve remains punishing for investors. Yields on two-year notes are now below the lows reached at the height of the financial crisis, and five-year notes yield a scant 1.68%. Going out longer on the yield curve still isn’t an answer to paltry yields, though. Long bonds are significantly overvalued from both long- and short-term perspectives. The low level of Treasury yields is both frustrating and maddening. Policymakers are attempting to recapitalize the banking system by engineering a steep yield curve. The Fed has essentially lowered the risk-free interest rate... [Read the full story]
A Raging Bull Market in MLPs
The raging bull market in MLPs shows no signs of slowing. Since the S&P 500 peaked in October of 2007, MLPs have gained more than 33%, while the S&P 500 dropped 25%. YTD, MLPs are up 17%, compared to a loss on the S&P 500. Related Posts:A 500% Return in High-YieldersHere’s the $64,000 QuestionA Simple Strategy for Stock Market SuccessDow Industrials vs. GoldAre Small-Cap Stocks Running Out of Steam? Read More →
Young Research’s Retirement Compounders
Retirement Compounders Portfolio is comprised of 32 dividend and income-paying securities from around the world. A well-diversified, 32-stock portfolio can give you over 90% of the diversification of owning every stock, for example on the NYSE. Related Posts:No Related Posts Read More →
Vanguard CEO’s Biggest Worry
You can probably count on one hand the people you trust to give you sound investment advice. For a number of reasons, talking about money even with them isn’t always the easiest thing to do, and often it’s worse than talking about religion and politics. Trust is paramount. Two companies that have gained the trust of individual investors are Vanguard and Fidelity (disclosure: Richard C. Young & Co., Ltd., invests in some Vanguard funds and uses Fidelity as a custodian for client accounts). Billions of dollars have poured into both firms while less desirable firms have dealt with net outflows.... [Read the full story]
Raters Now Liable for Mistakes
Bond Sale? Don’t Quote Us, Request Credit Firms – Anusha Shrivastava, The Wall Street Journal “Standard & Poor’s, Moody’s Investors Service and Fitch Ratings are all refusing to allow their ratings to be used in documentation for new bond sales…Each says it fears being exposed to new legal liability created by the landmark Dodd-Frank financial reform law…The new law will make ratings firms liable for the quality of their ratings decisions, effective immediately…That is important because some bonds, notably those that are made up of consumer loans, are required by... [Read the full story]
Global Insight
An Alternative to Ultra-Low Treasury Yields
The short end of the yield curve remains punishing for investors. Yields on two-year notes are now below the lows reached at the height of the financial crisis, and five-year notes yield a scant 1.68%. Going out longer on the yield curve still isn’t an answer to paltry yields, though. Long bonds are significantly overvalued from both long- and short-term perspectives.
The low level of Treasury yields is both frustrating and maddening.
Policymakers are attempting to recapitalize the banking system by engineering a steep yield curve. The Fed has essentially lowered the risk-free interest rate to zero. The losers in the scheme are the savers and retired investors who depend on full-faith-and-credit short-term Treasuries and CDs to fund living expenses.
Fortunately, there are still opportunities to pick up decent yields in investment-grade corporate bonds. The big down-tick in Treasury yields has not been matched by an equal down-tick in investment-grade corporate yields. In other words, spreads have widened, allowing you to pick up additional income without reaching for yield in long bonds or low-quality credits.
In Young Research’s Global Investment Strategy we help investors craft diversified corporate bond portfolios that offer a healthy yield advantage over U.S. Treasury securities.
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