Think the worst is still to come?

By: ispeculatornew
Date posted: 10.17.2008 (3:00 am) | Write a Comment  (2 Comments)

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I’ve received a few questions wondering about what kind of investments have been performing well in this very tough environment because let’s face it, a lot of investors think we are far from out of this situation and that an important recession will occur and probably has already started. While personally, I’m far from convinced of that situation, I have been looking through the universe of possible investments to see what kind of investments were performing well this year. No doubt, they are rare and tough to find.

Obviously, in a tough environment like the current one, it is difficult to escape going into bonds. With gold, government bonds are the safest investments and generally go up in such situations. Normally, that is true of all government bonds (almost)… but given the many credit concerns, many government bonds have been suffering, even in high quality countries like Germany. So it is safer to stay in US Government bonds, that are still seen as the safest investment in the world.

As you will see in the coming months, I am a big fan of ETF’s as forms of investments for many reasons (liquidity, cost, etc). And that is even more true for bonds. In such markets, million dollar investments are more common and so if you are planning on investing a few thousands out of your RRSP or your 401K, you will be paying a lot to get into those bonds. Not necessarily in terms of commissions but just in terms of the price that you will be able to get.

Because of that, I recommend that you invest in TLT, an ETF managed by Ishares, that tracks US bonds of 20+ years to maturity. It does pay coupons as would a bond and will give you an easy way to get in a position to profit from such uncertainty. To give an example, TLT has a 5.17% return so far this year. Not too bad when you compare it with the -35.55% return on the S&P 500.

So when you read that you should be diversified and hold a certain portion of fixed income in your portfolio, keep in mind that sometimes, equity positions should really be considered fixed income, such as this one (same as holding a GLD ETF would be more of a commodity position than equity).

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2 Comments

  1. Comment by The Financial Blogger — October 17, 2008 @ 7:13 am

    Is is possible to make periodic investment in such investment product? or is there mutual funds that copy ETF’s so we can buy them on a monthly basis?

    thx

  2. Comment by admin — October 19, 2008 @ 5:47 pm

    hmmm I would recommend sticking to ETF’s and simply buying them yourself periodically. You will be paying more up-front fees, but on a long term basis, you will be saving compared to mutual funds.

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