This paper will compare two articles both discussing the strategies of bond investment. The first article came from Google news titled "Bond Investment Strategies." The other article came from Wall street journal titled "Bond Strategies for Rising Rate Environments" by Sarni,.J., and Beer, P. of Payden and Rygel. Both articles seek to explain the available strategies in bonds investments to ensure safe and profitable investments to investors.
Analysis of the first article (Google news:Bond Investment Strategies)
The first article from Google news explained strategies that one should apply to make bonds work for their investment goals. The article explained that strategies of investing in bonds range from a buy-and-hold approach to other tactical trades that involves analyzing inflation as well as the interest rates. Investment made by any investor depends on their goals, their time frame as well as their appetite for the risk involved. It explains the major factors that investors must check when deciding their bond investment strategy. The first thing that any investor should consider is the changes that might occur in the market as well as the changes that might occur in their goals. Secondly, investors should evaluate their investment continuously to ensure that their investment strategies are on target and meet their financial goals. To decide whether to invest in short-term or long-term bonds, investors should consider the time frames, the risk that one is willing to take, and their tax status. The article also remind investors the importance of diversification when considering their bond investment strategy. According to Securities Industry and Financial Markets Association, the general rule in bond investment is that you should not put all your assets and risks in one class of asset. One should create a portfolio of many bonds and portfolio with different characteristics. For example, investor choosing government, corporate and agency securities creates protection from any of them losing.
The article illustrated practical importance of having a focused goal in bonds investments. For instance, investors should consider "buy and hold" strategy if their goal is to have their money remain intact and earn interest. These investors should not be worried about the impact of interest rate on the bond prices. In case the goal of the investor is to maximize the income, then investor should consider the long-term bonds. These bonds have more time for them to mature. The long-term bonds are at risk of being affected by the interest rates. Again, investors find higher coupon rates coming from corporate bonds than they can find in U.S. treasury bonds having comparable maturities. To prevent the impacts of the single issuer’s default, investors who consider investing in high-yield bonds, should also consider to diversification just like in the counterpart investors (The Securities Industry and Financial Markets Association, 2013).
Analysis of the second article (WSJ: Bond Strategies for Rising Rate Environments)
In the second article from wall street journal, Sarni,.J., and Beer, P. of Payden and Rygel explains different strategies from those in the first article but the approaches and general principles remain the same. The article is titled "Bond Strategies for Rising Rate Environments." The first strategy that the article suggests is the actions that an investor should take incase the interest rates in the market rises. In case the interest rate rises, the general rule is for the investor to shorten the maturity period. This helps the investor in avoiding large shocks in price in the bond portfolio. When the investor shortens maturity in isolation, there is very little or no income. For instance, if the Federal Reserve intend to keep the short-term interest rate at 0%, then there will be no income when one shortens the maturity. For the investor depending on the income from the bonds, 0.50% yields cannot meet the expenses. However, for higher yields such as 2.5% with maturities of 4-5 years, there is a significant profit. The second strategy is broadening the investment towards the lower rated credit sectors or simply "below investment grade" credit sectors. This helps the investors to have potentially improved yield as well as sensitivity resulting from lower bond price in case of changes in interest rates. For instance, comparing the "below investment grade bonds" and the "emerging market bonds," investor is able to know investments that are performing better than in the market. These kinds of investments usually benefit from the improvement in the economy as well as the rising inflation expectations. The article explains that this strategy is an effective method of optimizing the tradeoff between generating incomes and protecting the principle.
Sarni,.J., and Beer, P. of Payden also recommend investing in the high dividend paying stocks. Investing in high dividend paying stock can help investors to benefit from the stable and growing dividend payments. At the same time, the investor is enjoying protection from inflation and possible upside potential in prices. This is true because under such arrangement, the investors become the owners in business instead of being creditors. In this case, they will be sharing the inflation-generated increase in profits. Moreover, the high dividend paying stocks have performed better than broad stock market in many rising rate environments. According to the article, this trend is likely to continue in the future.
Similarities in the two articles (Suggestions by the articles)
These two articles discuss a very similar subject. However, they offer different suggestions to the investors that can lead investors to achieving secure and profitable investments in bonds. For instance, the first article focuses on the goals as the main guide when investing in bonds while the second article focuses on interest rates as the primary guide. They both provide very realistic options for investors who wish to invest in bond markets. The articles are clear in their discussion and one can systematically follow their contents. They cover investors from those who would wish to invest in stable markets, developing markets and even falling markets that are somehow unpredictable but still maintain security of their investments. One area that both articles agree on is the importance of diversification in bonds and stock market investments. They agree that diversification in these investments to portfolios of different classes help in reducing the risk of losing in case one sector fails to perform well. The last point they agreed on is the point of maximizing profits for the investors and the safety of investments.
Differences in the two articles
However, the two articles have several differences. In my opinion, the difference lies in the way that they deliver their important points to the investors. Let me start with the article from Google news. The article was simple to read and understand. Even a simple nonprofessional person could easily understand its content. One could follow the article’s argument without difficulty. However, the article is extra simple. One need to be careful if they are to use the strategies outlined in this particular article. It did not explain some pertinent issues related to bonds investment. Simple investors who may not seek further detailed information may end up making the wrong choice due to lack of enough information on bond investment. The strategies explained in the article do not cover all the issues surrounding bond investment. Therefore, in my opinion, I could not tell whether to trust the information provided. I could not tell whether the simplicity is from a professional or not.
In the second article, it was very informative. One thing that came out clearly from the article is that it is easy to trust the information provided in the article. This is because, other authors do not only support the information but it was further supported with real examples. It is supported by events that have ever occurred in the economy. Simply put, the article is not only theoretical. However, inexperienced investors could not understand the article easily. This is because; it was not explicit in its discussion. Instead of breaking the topics into small digestible sections, it broadened its strategies such that inexperienced investors cannot easily get information required. Some of the information provided in the article is not necessary to basic investors. I would simply put it that the information is very complex to be understood by nonprofessional investors.
References
The Securities Industry and Financial Markets Association, (2013). Bond Investment Strategies. Retrieved November 30, 2014 from http://www.investinginbonds.com/learnmore.asp?catid=6&id=386
