According to Benjamin Graham's margin of safety principal -- a measure of relative value between stocks and bonds -- buying an S&P 500 index fund poses less risk than purchasing long-term U.S. debt. However, the dividend yield of the S&P 500 -- at 2.09% -- is scraping against all-time lows. This puts income investors in a bind: Bonds with a strong credit rating don't yield much, exposing investors to a substantial amount of interest-rate risk on the 10- and 30-year end of the curve.
One strategy that income-focused investors should consider is allocating their portfolios toward a blend of U.S. fixed income and carefully chosen dividend stocks. Even though U.S. bond yields are low, if the country becomes tangled in a Japan-like quagmire, already-low yields could drop further. This scenario could offer capital appreciation opportunities and (at least some) recession protection.
Source: The Street
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Posted by D4L | Wednesday, October 12, 2011 | ArticleLinks | 0 comments »________________________________________________________________
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