There have been many articles on Seeking Alpha that suggest investors should simply replace their bonds with stocks. Or that investors should simply ignore risk altogether and sell their bonds. There have been articles that suggest investors should not hold bonds at all. Once again, without any mention to risk or risk tolerance levels. Just who should hold zero bonds? As you can imagine I spend considerable time imitating a bobble-head doll with my head repeatedly shaking side to side in the typical "NO" gesture. Stocks are not bonds.
Investors largely hold bonds for two reasons; for income and for portfolio risk management, and generally for their lower risk characteristics. Bonds are number one on the food chain when a company runs into trouble, or goes bankrupt. If a company goes out of business, bond holders are paid first. They are first in line. Shareholders are standing on their tippy toes trying to get a glimpse of those bondholders at the front of the line. If there's real trouble with the company, those shareholders might as well just go home, cause there won't be anything left after the bond holders take their cut; sometimes that's a full cut. It's the same story if a company is struggling but not declaring bankruptcy. The bond holders may continue to get their income in full. The dividends can be suspended, reduced or cut.
Source: Seeking Alpha
Related Articles:
- Free Cash Flow Payout vs. Dividend Payout
- 9 Dividend Stocks Trading at a Double-Digit Discount
- 6 High-Dividend, Low P/E Value Stocks
- How Much Money Will You Need Before Retiring?
- The 2013 Dividend Achievers
Sorry Guys, Stocks Are Not Bonds
Posted by D4L | Tuesday, December 10, 2013 | ArticleLinks | 0 comments »________________________________________________________________
Subscribe to:
Post Comments (Atom)
~
Popular Posts Last 30 Days
-
As a relatively new blogger, the one thing that has stood out in my mind is the number of Canadian bloggers in the areas that I am most inte...
-
The best dividend stocks have one thing in common: resiliency. They can continue increasing their dividends even in the harshest economic en...
-
Investors wanting to enjoy steady and consistent income should consider dividend aristocrats. In fact, even in these chaotic times, dividend...
-
Higher dividend yields often imply that the underlying company paying the dividend has a higher risk profile. However, that's not always...
-
Dividends and diversification -- those two things can help you achieve a comfortable retirement when combined with the income you will recei...
-
It's hard to beat a sustainable, high-yield dividend paired with a beaten-down valuation. The best dividend stocks offer high yields and...
-
Strange but true: seniors fear death less than running out of money in retirement. And unfortunately, even retirees who have built a nest eg...
-
When hunting for discounted investments, one excellent starting point is to look for businesses with dividend yields trading above their fiv...
-
Today we'll talk dividend deals. Big payers. Stocks yielding up to 10.3% and trading for as little as three-times free cash flow (FCF). ...
-
How high is too high when it comes to dividend stocks? Of course, every income investor wants as much yield as possible. However, they also ...
0 comments
Post a Comment
Post a Comment
Note: Only a member of this blog may post a comment.