Investors withdrew an unprecedented $2.1 billion from junk mutual funds globally on Aug. 9, research firm EPFR Global said. Relative yields on high-yield bonds, rated below Baa3 by Moody’s Investors Service and lower than BBB- by Standard & Poor’s, have soared to 730 basis points, the highest since 2009, while returns on the debt have declined 4.6 percent this month.

“There’s clearly a panic going on in the market,” Feltus, who oversees the $2.1 billion Pioneer High Yield Fund, said today in a Radio interview on “Bloomberg Surveillance” with Ken Prewitt and Tom Keene. “Prices are at such a point that you can even survive a recession, but people aren’t looking at the fundamentals. They’re just looking at the technicals, and ‘get me out of here.’”

Feltus’s fund has declined 10.5 percent this month through yesterday, after climbing 17.6 percent in 2010, according to data compiled by Bloomberg.

The extra yield investors demand to hold junk bonds instead of Treasuries has jumped 106 basis points, or 1.06 percentage points, since Aug. 5, when S&P stripped the U.S. government of its top credit grade. That implies defaults between eight and nine percent over the long term, while defaults currently are in the two to three percent range, Feltus said.

“The volatility in the market’s awful,” he said. “Right now you’re trying to hang on.”

source from: investmentnews

After such a tumultuous year for investors it can be helpful to come back to some basic principles.

Here are five do’s along with five don’ts that we believe are good advice at any time, but especially in the aftermath of the global financial crisis.

Let’s start with the Do’s.

1. Be cautious. Having a conservative bias makes mathematical sense. If you lose 50 percent of your capital you need to earn 100% to get back to square one. This most basic mathematical fact is justification enough for a cautious bias when investing. It is better to miss out on some upside in order to protect your capital against downside.

2. Have realistic return expectations. Over the long haul fixed income investments like deposits and bonds will return between 4% and 7%, while property and shares have averaged returns of 7% to 10% a year.

A balanced portfolio, depending on the mix of assets, might therefore be expected to deliver a return of 6% to 8% a year. After tax and inflation are deducted this return may translate into a real net return of 2% to 3% a year. Not only do returns tend to be lower than people expect, they also often end up being more volatile. Expect returns to be up and down, sometimes dramatically so. Market volatility is an unavoidable part of investing.

3. Diversify. The best way to avoid financial disaster is diversification. A wide spread of high quality investments across sectors, markets and assets is the most effective way of reducing risk. Diversify across time as well. Investing in instalments is a great way of protecting against mis-timing and buying just before a market fall.

4. Invest for income. Owning investments that pay you to own them makes sense. Bond, property and shares all produce income. Capital growth is important, but it usually follows income growth. Buy for income and growth should follow.

5. Take a disciplined approach. Setting some rules around how you will invest your portfolio, such as how much you will invest in riskier options like shares and property and how many you will look to own, is worth the effort. It gives you a roadmap on how to invest your portfolio.

And five don’ts.

1. Don’t ignore inflation. Even if inflation stays at around 2%, it still takes 10% off the spending power of your capital every 5 years. Inflation is every investor’s enemy number one. Over the long term real assets such as property and shares have proven the best protection against inflation.

2. Don’t rely on market forecasts. Humans cannot predict markets with any consistent degree of accuracy. Don’t put too much faith in them. We should spend more time ensuring our portfolios are well diversified than on trying to predict market movements.

3. Don’t buy and hold. Invest for the long term and with the intention of holding your investments for many years but, if things change, be prepared to review and alter your portfolio accordingly.

4. Don’t fall for options that appear too good to be true. At present, the return on a New Zealand government bond, the safest investment of them all, is around 5%. If you want no risk, this is the return you have to accept. Achieving any return above this level will involve taking a degree of risk. And the higher the return you aim for, the more risk you have to take. No exceptions.

5. Don’t invest in anything you don’t understand. If you find yourself struggling to understand an investment it can pay to give it a wide berth. Or at least, invest only a small amount until you learn more and get more comfortable with it.

Source:ezinearticles.com

Tax-free municipal bonds and Treasury bonds are generally for investors with money who want income. Municipal bonds offer interest that is exempt from federal income taxes, while U.S. Treasury bonds are the safest long term debt issues in the world. Whether either are good investments for you all depends on the circumstances.

Sometimes the world of investing gets turned upside down. In 2009 this was the case, in my opinion. If you wanted to earn any kind of interest on your money, you had to turn to bonds. Interest rates were in the gutter and the government intended to keep them there so the economy could recover. Meanwhile some investors were unknowingly putting money at risk by investing in Treasury bonds and municipal bonds. After all, they are good investments aren’t they?

Normally, safe short-term investments pay less interest than their longer-term counterparts. By 2009 this had gone to an extreme. Money invested for the short term was paying virtually nothing. Interest rates were at historical lows, with 30-year Treasury bonds yielding less than 4.5%. That’s a unique set of circumstances the investor should take into consideration.

Would a municipal bond (municipal or muni) and/or a Treasury bond (Treasury) be good investments for YOU? That’s another set of circumstances you need to consider. Older folks with a lump some of cash in search of higher income might consider them. Young people in search of growth have better alternatives. For example, stocks and higher yielding but riskier corporate bond issues.

Then, there’s the question of how comfortable you would be selecting, purchasing and holding an individual municipal bond issue, for example. You can buy a muni or a Treasury bond through a broker; and you can buy a Treasury bond directly from the U.S. Treasury. Most investors I’ve known would rather own a small part of a large managed portfolio of these securities and let professional managers deal with the details.

The simplest way to do that is with a bond fund. Some specialize in Treasuries and others in municipals. If you go this route like most average investors do, pick a bond fund with low expenses. Interest rates are low enough without diluting your income with high expenses.

The advantage of municipals is that the interest income is exempt from federal income tax, tax-free. Normally munis pay lower interest than taxable issues for this reason. Check and compare rates, because at times municipals can be a bargain vs. taxable issues of similar quality.

The advantage of the Treasury bond is that it is the safest one out there. Thus, it pays less income than riskier debt securities. But as a final consideration: all bonds have interest rate risk. If rates in the economy go up, bond prices fall… especially those with long term maturities.

A retired financial planner, James Leitz has an MBA (finance) and 35 years of investing experience. For 20 years he advised individual investors, working directly with them helping them to reach their financial goals.

Source:ezinearticles.com

He will report to Thomas Kalaris, the chief executive of Barclays Wealth, and be responsible for helping the firm expand its wealth management services in the Americas, the firm said in a statement.

Prior to joining Barclays, Mr. Cox was ran the global investment solutions group at Merrill Lynch & Co. Inc. in New York.