Record low bond yields impact investors

By Anya Kamenetz
Posted on September 20, 2016

The website Quartz reported recently that yields on U.S. 10-year Treasury bonds are lower than they have been since the days of Alexander Hamilton.

But when it comes to bond yields, zero is not the limit. Brexit and uneasiness about the global economy have pushed interest rates on a third of developed-country government debt into negative numbers as investors seek safe havens. That means countries like Germany, Switzerland and Japan are charging investors money for the privilege of holding onto their cash.

Because it’s a bouillabaisse of different holdings, there is no guaranteed date that you’ll get back your principal.

That said, many investment managers feel that it’s difficult to properly diversify through buying individual bonds unless you have a lot of money to park specifically in fixed-income investments. (What “a lot” means can vary — some say $500,000, while others argue that $100,000 is plenty.)

And the pressure to diversify is increasing with yields on the standard Treasury bonds so low.

So to recap, for most beginning investors, proper exposure to bonds will come in the form of target-date funds which will give you a selection of U.S. Treasuries, corporate and foreign issues, alongside stocks.

For those with more assets or who are heading closer to retirement — meaning you are shifting more towards fixed-income investments — bond-only funds would be the next place to look.

If you are willing to be an active money manager or work with an investment adviser you trust, you should look beyond Treasuries to buy individual bonds across sectors.

Anya Kamenetz welcomes your questions at diyubook@gmail.com.