Tag Archives: inflation

Backing Into A Dead End

Posted July 27, 2012 by admin. tags:Tags: , , ,
Dead End

photo by bennylin0724

Written by Nathan White, Chief Investment Officer, Paragon Wealth Management

Backing into a dead end is the way I feel about much of the bond market right now.  It might keep you off the risky streets, so to speak, but eventually gets you nowhere.  Just when you think rates couldn’t go any lower bond yields continue to hit record lows.  The 30-year Treasury hit a record low of 2.47% and the 10-year is around 1.42%.  Yields are getting compressed across the board.  Simply amazing to put it plainly.

Prudence would dictate to take profits on bonds but where would you put the money if you’re a conservative investor?  In order to get a real yield on any bond investment it must either be in the high yield (junk) space or you must go to the long end of the curve.  That means you’re taking on significant risk.   The alternative is to put your money in cash and get nothing and hope that inflation stays low so your purchasing power doesn’t erode.

Bonds seem to be entering what could be their final blow-off phase.  There is so much money that continues to flood into bonds due to many factors but there is not much road left at this point.  We are starting to hedge our bond exposure (almost all corporate) from this point on as the reward is just not worth the risk.  For example, as of 7/25 the iShares Barclays 7-10 year Treasury Bond ETF (IEF) has an average yield to maturity of 1.15% with an effective duration of 7.51.  What this basically means is that the price appreciation potential from this point is barely over 7.5% and the 10-year would have to drop to zero for that to occur.  Just a year ago the 10-year Treasury was in the high 2% range which was still amazingly low.  If the yield returned to that level the holder of IEF would lose 7.5% and it would take 6 – 7 years with its measly interest rate to get back to even.  That’s not the kind of trade-off I like but one that large numbers of investors are currently taking.

Disclaimer
Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.

Inflation: Should Investors be Worried?

Posted February 3, 2011 by admin. tags:Tags: , , ,

This was taken from an interview on Paragon TV with Dave Young, President of Paragon Wealth Management and Paragon TV host, Randall Paul.

“Inflation is on my mind as an investor, especially a retired investor,” said Randall Paul. “Should I be worried?”

“It is good to be aware of inflation,” said Dave Young. “It helps to look at the past to know where we will be in the future. 2009 had no inflation, but generally, we’ve averaged two and a half to three percent. In the last 10 years, we had 25 percent inflation. In the last 20 years we had 45 percent.

You need to have a strategy in place to off set inflation,” said Young. “If you are just buying CDs that are 1 to 2 percent, and inflation is 2.5 to 3 percent, you will be going negative. Whatever your strategy is, you need to generate more than the rate of inflation. That’s just part of it because there are also taxes involved.

“Investors should not be blindly buying stocks and real estate. If you follow specific strategies using stocks and real estate, you will have the best chance at overcoming inflation.”

Click on the video above to watch the full interview.
 
Visit Paragon’s YouTube Channel to see more videos.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Any information presented is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Investments in securities involve the risk of loss. Past performance is no guarantee of future results. All opinions and estimates constitute the judgement as of the dates indicated and are subject to change without notice. Do not rely upon this information to predict future investment performance or market conditions. This information is not a substitute for consultation with a competent financial, legal, or tax advisor and should only be used in conjunction with his/her advice.

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