John Heinzl, too! Read his GM article along the same lines yesterday:florenntina wrote: ↑ @Freliona
Interesting Doug’s opinion yesterday:
“...However, it is true that investors will need to take more risk in the future with their fixed income holdings to achieve better rates of return.
A 40% fixed income component being composed predominately of US Treasuries or Government of Canada bonds will no longer work. More exposure to corporate bonds, for instance, will likely be required instead.”
And it comes in right time as I just made decision about my portfolio rebalance. Maybe he reads RFD?
And that’s what I’m learning towards as well with a portion of maturing GICs (reduce GIC allocation from ~20% to ~12-13% and start buying dividend stocks in the non-reg account instead) Yes, I’ve learned from experience that even “safe stocks” are not a substitute for GICs and bonds in the capital preservation sense, so will only be doing it with money that I won’t need to withdraw any time soon (hopefully never, so will be ok with less growth/higher yields - I’ll collect larger dividends and pay less taxes, and my daughter will pay less capital gains taxes when she inherits them )According to the iShares website, the weighted average YTM of the bonds in XBB is 1.21 per cent – or less than half of the distribution yield. What’s more, the posted YTM is before fees. After subtracting the MER of 0.1 per cent, XBB’s net YTM falls to about 1.11 per cent.
This shouldn’t come as a huge surprise given how low government bond yields have sunk. Five-year government of Canada bonds, for example, were yielding about 0.33 per cent as of Friday morning, while 10-year bonds were yielding 0.49 per cent on a YTM basis. If it weren’t for higher-yielding corporate issues, XBB’s YTM would be even lower than it is.
Another thing to keep in mind is that the price of XBB – or any other bond fund – won’t be stable. It could move higher if interest rates drop or lower if rates rise.
I don’t mean to steer you away from bond funds. As long as you understand what the distribution yield means – and can accept some modest volatility – they are a fine solution for your fixed-income needs.
However, if you are comfortable taking on more risk, you may also wish to explore dividend-paying stocks, particularly those at the conservative end of the spectrum, such as utilities, power producers and telecoms.
Good job!Btw. I already did some work:[...]