Saturday, April 11, 2009

5 is greater than 7 when 7 becomes 3

Yes. It is possible. This is what happened to many people this year. They had a great deal of money invested in energy stocks, financial products and mutual funds. Not only have the mutual funds lost massive amounts of value, some of the financial products are completely bankrupt. Now, energy stocks, in an effort to keep the company alive, have slashed or suspended dividends. In the previously demonstrated portfolios, a 50% reduction in the dividend payouts would mean that the total earnings on the 'stock' portfolio investment would be set at roughly $12000.

contrast that with the 'bond' portfolio which still pays the same $15000 but because this meltdown has created a buying opportunity for corporate bonds, the chance to increase the return with some invesment grade longer term bonds (average duration of 6 years) is substantial. AND YOU HAVE 100% of your captial. you lost nothing in the meldown, provided you hold all your bonds to maturity.

i can't make the case any simpler than that. i hope some novice investors out there or even some experienced investors who have been doing things the wrong way find this blog and think about it. go read around on the internet and go to the library and look for books on the canadian bond market. IT IS "IN YOUR BEST INTEREST" TO DO SO!

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