NewArc Investment Inc. | Bond Ladder
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Which investors should emphasize bonds?
 
We start discussions with each investor with a simple question: Are you preserving wealth, or do you need to create wealth? This is an excellent way to think about risk and reward. Most individual investors are on a mission. The cry comes from everywhere: Give me yield!  It is natural to want safety and guaranteed income.  This often tempts investors to choose bond funds, REITs or MLPs — often a big mistake.
 
Scared witless by the housing bubble, the stock market decline in 2008, and the continuing headlines, the average investor makes the mistakes that come so naturally:
 
1. Chasing past performance — bond funds have done well.
2. Confusing true yield with current payouts — many “yield plays” are simply returning your capital.
3. Failing to balance risk and reward — yield history provides a false sense of security.
 
These combine to create a false sense of security about investments in bond funds. Many investors, despite the warnings in the prospectus, think that these are safe investments with assured yield. Unfortunately, this is not the case.
 
The NewArc approach is explicitly designed to avoid these mistakes. We recommend our bond ladder for clients who have:
 

  • Strong focus on guaranteed return
  • No immediate need for the principal
  • Desire to participate as rates move higher
  • Willingness to accept a modest yield

 
The bond ladder follows several important rules:
 

  • Five “rungs” with three bonds per rung;
  • Everything is investment grade with no company on negative watch;
  • Only one bond per company;
  • Careful shopping on entry to get the best prices;
  • Ability to “roll” to higher yields if/when rates move;

 
As a result, the investor has fifteen different high-grade bonds with very little risk and the ability to ratchet up yield over time.
 
If you own bond funds or bond ETFs you should conduct an immediate review. Taking personal control of your bond allocation requires owning bonds, not bond funds. Our bond ladder program provides a way for the individual investor to participate in the bond market while avoiding its many pitfalls.
 
If you’re ready to make definite progress on your own personal quest for yield, we urge you to contact us today and schedule a call with Jeff.