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  • Writer's pictureTrusha Desai

Bond away

Chart courtesy

When the stock market is in a bullish frenzy, we are all in the game of nabbing capital gain (so that at the end of the year we can write off losses ~ if that is our protocol). We ignore the dividend yield and dividend growth strategies that we had carefully crafted, for gain is instant gratification while dividends are only a quarterly or monthly (or perhaps an annual) phenomenon. For who knows whether the dividend yield that is posted will change in either direction before the next dividend is announced: if yield goes up, we spend it all on a dinner, if gain goes down, we buy frozen dinners and glare at the reality television shows that yesterday were our favorites.

Through all these roller coaster rides of stocks, commodities, currencies, futures, options, we forget the inherent safety net (other than cold hard cash) of bonds.

We have looked at ladders, we have studied ask yields and ask prices, but have we wondered why there are some bonds that do not have corresponding bid yields and bid prices? Ask yields are a conglomerate of the posted interest and ask price. Therefore, other than going for a high-risk, high-yield strategy of what is commonly termed “junk bonds”, we might invest in ETF’s (Exchange-Traded Funds). However, with ETF’s mushrooming in every corner of the investment world, we must study their MER’s (Management Expense Ratios), distribution yields and performance. As always, we must remember that all investment strategies carry risk: and bonds may provide a safe haven, in terms of a hedge, when the rest of the portfolio crashes (or hopefully not).

Please contact your investment adviser for more discussion and recommendations. We are available to provide you with a second opinion and investment analysis. We prepare extensive Capital Gain schedules (Schedule 3, T5018) for Canadian personal taxes.

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