Last year was not a good year for most investments except for US Treasury Bonds. For retirement-oriented investors, the question remains as to what to do next. Many people wonder where decent rates of return can be found with minimal risk.
Although many seem to lean toward Treasury investments, they may now be priced too expensively. Chief Investment Officer Mohamed El-Erian of Pimco and popular financial columnist Andrew Bary both advise people to stay away from treasury bonds for a variety of reasons best outlined in a Barrons article, Get out now, published January 5, 2009 (search for title at: http://online.barrons.com/article).
With Treasuries out of the picture, what other asset classes offer any hope for this year? Our research, and others commenting on this situation, point to four investment classes. We have already published an article on the fourth one, so we will concentrate on the first three. Here are all four classes we have examined.
* Mortgage Backed Securities * Treasury Inflation-Protected Securities-TIPS * Municipal Bonds * Investment Grade Corporate Bonds
1. Yields on mortgage-backed securities have been declining ever since the Federal government November 2008 announcement that it would purchase up to $500 billion of Ginnie Mae, Freddie Mac and Fannie Mae home mortgage-related bonds. But with the purchases just beginning in January, current yields of this battered asset class still look attractive relative to historical levels. Also, with the Fed’s intervention, mortgage-backed securities now offer effectively the same Federal guarantee as U.S. Treasuries, but with higher yields. Consider iShares Barclays MBS Bond Fund (MBB), iShares Barclays Agency Bond Fund (AGZ) and SPDR Barclays Capital Mortgage Backed Bond ETF (MBG).
2. At the moment, TIPS prices are headed lower with fears of deflation. However, if the Federal stimulus packages prompt inflation, as many believe, TIPS will correspondingly produce better results. You will likely read many other articles on TIPS, so pay close attention to these two products; (TIP) iShares Barclays TIPS Bond Fund and (IPE) SPDR Barclays Capital TIPS, both on the NYSE.
As for tax free municipal bonds, they are yielding higher levels than usual. Although they hit low prices in November of 2008, they are still showing strong value when compared to U.S. Treasuries. When you consider that investment grade municipal bonds produce tax fee distributions of 4-5%, they equate to taxable Treasury bonds distributing 7.4% in a 35% tax bracket. With that in mind, here are a few ETFs to consider: (MUB) iShares S&P National Municipal Bond Index Fund, (PZA) PowerShares Insured National Municipal Bond Portfolio and (TFI) SPDR Lehman Municipal Bond ETF.
Another bond choice to study is a California fund, (CMF) iShares S&P California Municipal Bond Fund. One reason to watch this ETF fund is the pending Federal assistance programs under the stimulus packages. California is likely to benefit from these programs due to its enormous size and political importance.
What about safety of principal? For investors wanting more assurance, (PRB) Market Vectors Pre-Refunded Municipal Index ETF may be the hot item. This ground-breaking ETF invests only in pre-refunded municipal bonds. The collateral for these bonds are U.S. Treasury securities which means they are the only municipal bonds fully backed by the U.S. Government.
The fourth asset class we reviewed for safer retirement income is the investment grade corporate bond approach. At their current prices, corporate bonds are still a bargain. We are witnessing portfolio managers, insurers and brokers loading up on high grade corporate bonds because they believe that the government bailout programs may lead to fewer corporate defaults. For more details on the corporate bond funds strategies, read the www.AboutETFs.info article on 15 asset classes at this link: http://www.aboutetfs.info/Monthly-Income-Strategies.php .
In future articles, we may examine two additional income-producing asset classes: senior loans and preferred stocks. But for now, your best bets for principal safety and steady income seem to be mortgage-backed securities, Treasury inflation protected securities (TIPS), municipal bonds and high-grade corporate bonds.
Strategies mentioned in this article carry no guarantee or implication of success. There is no solicitation to buy or sell securities implied or suggested by Alpine Strategies or its staff. Your decisions to act upon our opinions should be carefully weighed based upon your investment objectives, and you should consult with a professional advisor prior to making any investments.
Cost Effective Holidays For The Whole Family
Tags: Travel, corporate bonds, etfs, municipal bonds
