Lux Investing

Now that bond prices have went up what should a young income investor do?

Got an inheritance and want to invest it for fixed income so I can have a few extra grand a year to help pay for living expenses because I am still in college and going to grad school. Now that bond prices just went up, what should I do?

Public Comments

1. Invest in variable rate money market funds or, if you want to know exactly how much you'll be receiving, in three or four year notes.
2. Vanguards Intermediate Bond Fund or their Total Bond Fund... when you get out of college I'd say 80% S&P 500 Fund so you can start getting ahead for the rest of your life.
3. With high bond prices and low interest rates you will not maintain investment value in the bond market. Not only will your bond not hold its value when expressed in dollars, but the dollars will be losing value. Compound this with income tax on the interest. Bonds are a sure loser in this market, and particularly longer term bonds. I bought some bonds before the prices went up, now I am selling them, and buying a bank stock that is severely out of favour. This is not a safe loser like bonds, it could be a big loser, orf a big winner.
4. when interest rates go very low, people say that it is not worth it and they need more money then 1% or 2%. At this point they do very stupid things. The last time they were very low, banks lend money to people with nothing to buy houses to get a higher rate of return. Now these people are not paying the banks back. Bottom line - It is better to get your money plus 1%, then to loose all of your money. Put the money into a money market account or invest in 6 month t-bills and just roll them over.
5. There are several other options open to you, some even tax advantaged. Among these would be an investment in preferred stocks. There are mutual funds that invest only in preferred stocks and generate pretty good returns too. Many preferred stocks are tax advantaged currently. The dividends are taxed at a lower rate than interest. About 1/2 the rate. Here are just a couple to give you an idea HPF price about $22.00 dividend rate about 8.5% pays monthly. BTZ price about $18.40 dividend rate about 10% pays monthly. Another option would be to invest in REITs and Limited partnerships. These dividends are not tax advantaged. But the dividends have a tendency to increase over time. Among the limited partnerships are ETP, PAA, SLX. They pay about 6.5% dividend rates--some higher some lower. These dividends have been rising about 10% annually. Total annual returns have been averaging about 15% Among the REITs currently considerably out of favor are EQR, BDN, CLI. Dividend rates from about 5.5% to about 8% Heck some bank stocks are paying about 6% now.