All-Weather Bond Fund Yields 7%
March 2, 2018
This Fund Now Yields 7%
Let me start with something I think you’ll agree with.
Your head says, “I need stocks. If I’m ever going to save enough for retirement, I need higher returns.”
But your gut says, “Security. Dependable income. And I don’t want anything that will plunge into the next crash.”
You’re not alone. If only something offered stock-like gains during the good times. Then, when things go ugly, it turns chicken and starts acting like a bond. I want lots of stability and lots of income.
Actually, that already exists.
The past few years, I’ve preached the benefits of owning convertible bonds to my paid Automated Income subscribers. These securities pay interest like regular fixed-income investments, but they also give owners the right to convert their bonds into common stock. The combination has created a powerful wealth-building strategy for investors.
Convertible bonds carry almost the same upside as stocks. The “convertible” feature in a convertible bond acts like a free call option. So when business is rockin’ and rollin’, these bonds rally right alongside the equity market. But if the stock market crashes, these issues suddenly start acting like bonds.
Because convertible bond investors know they’ll keep collecting their coupons, they get less nervous during a crisis. The fixed-income part of a convertible bond puts a floor underneath the price. That sense of security can be worth a lot on those days when the Dow plunges by 1,000 points.
Finally, these issues represent tidy income streams too. Convertibles pay fixed coupons, like normal bonds. And just like traditional fixed-income investments, bondholders stand first in line to get their money back in the event of a bankruptcy.
Plus, you sport impressive yields. While government bonds pay out next to nothing, the corporate debt still gets issued at decent interest rates. Many of these deals come with payouts two, three, and even five times larger than Treasury notes.
The AGIC Equity and Convertible Income Fund (NYSE:NIE) presents the easiest way to get started. This fund owns a portfolio of high-quality convertible bonds, which now sports a dividend yield of seven percent. And as you can see in the chart below, units have delivered impressive returns over the past few years:
Source: StockCharts.com
Of course, you can’t call convertible bonds sure things. For one, companies default on these notes from time to time. For this reason, you have to watch credit quality like a hawk.
That said, missed payments usually don’t present a problem when you stick to the highest-quality securities. And in the case of NIE, a professional management team keeps a laser-like focus on credit quality. The portfolio is centered around top-tier names, which makes it easy for owners to sleep at night.
For investors looking to mix the upside of equities with the safety of bonds, convertible funds like NIE are worth investigating further. Your head and your gut will both like this one.
