Merriman, Inc

I am considering buying bond funds and would welcome your recommendations. I recently read in Time magazine that you could get hurt if you’re invested in a bond fund. How can I get hurt holding bonds?

Many people think bonds are risk free, but that is not actually true. There are multiple risks associated with bonds, but they can be an extremely important component of a portfolio despite those risks. And, if properly allocated, they can provide a level of security above and beyond the equity markets. Of course there is no free lunch, and the added stability of bonds requires a tradeoff. Namely, you are foregoing the equity premium associated with stocks.

We recommend using a mix of high quality short- and intermediate-term government and Treasury issues. For tax-deferred accounts we include Treasury Inflation Protected Securities (TIPS). This allocation is purposefully designed to be very conservative. Nonetheless, it is still subject to certain risks. Interest rate and inflation risk make the top of the list. You can alleviate the risk of inflation through the use of TIPS. Interest rate risk is somewhat of a different story.

There is an inverse relationship between bond prices and interest rates. As rates rise, bond prices fall and as rates fall, bond prices rise. Longer-term bonds are hit hardest in a rising rate environment; short-term issues are hurt the least. Of course shorter-term issues generally pay less interest. If you want an appreciable return – especially in today’s low rate environment – you need to extend beyond extremely short-term debt. Our solution is to limit risk exposure and also gain some additional yield by using high quality short- and intermediate-term US government and Treasury debt.

Merriman Director of Research Larry Katz is quoted in this Wall Street Journal article on municipal bonds and how to use them in your portfolio.

Podcast: Play in new window | Download

So far, this workshop has covered the most important things every investor should know and think about. However, all the investment knowledge in the world won’t do you much good unless you put it to work in your portfolio and your life.

In the sixth session of our online workshop, Moving into action, I identify the key things that will be most useful in translating knowledge into action and action into results. I’ll also point you to a lot of helpful books and other resources.

Recommended reading to supplement this section: “Your Action Plan,” Chapter 15 in Paul’s book “Live It Up Without Outliving Your Money.”

When you retire, your financial life may change profoundly. You may have been saving money all your life, and suddenly the flow of dollars starts moving the other way. This change has large challenges emotionally, mathematically and financially.

In the fourth section of our online workshop, Paul discusses taking distributions in retirement and suggests solutions that are likely to work for retirees in various circumstances.

If this topic is of particular interest to you, we recommend reading our Best of Merriman article, titled “Retirement distributions: How much can you afford?”

We hope you have enjoyed the first two sections of our online workshop. The third section, Selecting the best mutual funds, is now available at our YouTube channel: www.youtube.com/merrimaninc.

Thousands of mutual funds are available in today’s marketplace, but only a handful are truly the very best for investors. In this section of the Merriman Online Workshop, Paul Merriman compares two fund families, showing why each is worthy of your investment dollars and your trust.

If you missed the first two sections, you can find them here:

Section 1: Choosing the best asset classes

Section 2: Fine tuning your asset allocation

A couple of weeks ago, we introduced our online workshop with Section 1: Choosing the best asset classes.

Now Section 2, Fine Tuning Your Asset Allocation, is available at www.youtube.com/merrimaninc. Arguably the single most important decision every investor makes is how much of his portfolio to hold in stock funds and how much in bond funds. This is the main determining factor in both risk and returns. In this section, Paul Merriman uses a table of investment results going back to 1970 to help you choose the allocation that is most likely to be successful for you.

The six videos that make up Section 2 cover:

1. Fine Tuning Your Asset Allocation
2. Fine Tuning Table
3. S&P 500 vs Worldwide Equity
4. The impact of adding fixed income
5. Fine Tuning for retirees and moderate risk investors
6. Finding your personal best asset allocation

Successful investing is all about making smart choices, and I’ve taught thousands of investors how to do that since our company opened in 1983. Our teaching has taken many forms, including radio, television, newsletters, podcasts, books, articles, websites and DVDs. But my favorite format is the live workshop, a room filled with investors looking for the best solutions.

For most of my career, delivering a workshop required actually being in such a room, often with extensive travel involved. Now I am delighted to present a consistent workshop experience to thousands of investors online. (more…)

Podcast: Play in new window | Download