What the bond exodus means for you
Everyone's ditching bonds and their pitiful yields. So what should you do with your portfolio?
But that's all changed. Now investors are fleeing bonds, shaking their heads at 2% returns. It's time to go for the big bucks, apparently. About $400 million flowed out of taxable bond funds (on a net basis) during the first week of December, MarketWatch reports.
Some of that might be year-end profit taking, but bonds are clearly falling out of favor. OK, so what does that mean for your portfolios? Don't follow the trend and ditch bonds -- they should still be a big part of your investing strategy.Fortune has some tips for how to manage the bond exodus.
The key now is to be really careful about which bonds you step into. Rates are so low now that you should avoid long-term Treasurys, writes Shawn Tully. Rates are sure to rise, and that will annihilate the prices of long-term bonds. Post continues after video:
Tully suggests investors look at bonds with short maturities. New areas of fixed-income investing are also good to check out. He offers four categories for investors:
High-yield bonds that are intermediate-term. A good bond in this category has a yield of about 6 percentage points over Treasurys. He suggests BlackRock's iShares iBoxx High Yield Corporate Bond Fund (HYG), which has an 8% yield and a five-year average maturity.
Emerging-market bonds. Buy the debt of Brazil and Indonesia. Those countries aren't up to their eyeballs in debt yet, unlike some other governments we know. Some of them are already ahead on the recovery, so there's less chance that their rates will rise dramatically, Tully writes. He likes Pimco's Emerging Local Bond Fund (PELAX).
Floating-rate bank loans. Again, another way to avoid the damage from interest rates going up. Banks lend money to companies, and the funds buy up those loans. The loans are generally priced relative to some benchmark rate that changes over time, which means they reset regularly. Tully suggests BlackRock's Floating Rate Income Trust (BGT), which has a 5.6% yield.
Go-anywhere funds. These are the ultimate in freestyling funds, with managers who are allowed to search the world for opportunities. BlackRock has the Strategic Income Opportunities Fund (BASIX), and Pimco has the Unconstrained Bond Fund (PUBAX), Tully writes.
MORE ON MSN MONEY
Copyright © 2013 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
The social media stock surged in its first day of trading. But in the month since, shares have gained only 5 cents.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.