The financial crisis has dramatized investors, and people have sought safety in bonds. As bond yields dropped and prices rose, investors may want to consider dividend-paying investments and exchange traded funds (ETFs), instead.
The federal funds rate is around zero and 0.25% and a rate hike won’t come around until the second half of 2011 at the earliest, comments Ben Baden for U.S. News.
Shifting one’s portfolio into dividend ETFs may be riskier, but dividend stocks are usually less volatile than other stocks and provide higher yields than bonds. Additionally, dividend investments also do well as interest rates rise since it is indicative of an improving economy. Companies would respond by dishing out more dividends. [How ETFs Reinvest Dividends.]
John Diehl, senior vice president in the retirement division of The Hartford, remarks that it is important to stay diversified among a variety of fixed-income assets and maturities. However, one shouldn’t be too keen on long-term Treasuries that offer higher yields because they will take do poorly when rates increase.
Additionally, investors may take a look at high-yield junk bonds. Defaults on junk bonds are down and Moody’s expects defaults to drop below 2% by mid-2011. [Junk Bond ETFs: Are They for You?]
For more information on dividends, visit our dividend ETFs category.
- iShares Dow Jones Dividend Index Fund (NYSEArca: DVY)
- WisdomTree LargeCap Dividend Fund (NYSEArca: DLN)
- Vanguard Dividend Appreciation ETF (NYSEArca: VIG)
- iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSEArca: LQD)
- iShares iBoxx $ High Yield Corporate Bond (NYSEArca: HYG)
- PowerShares Fundamental High Yield Corporate Bond (NYSEArca: PHB)
For full disclosure some of Tom Lydon’s clients own LQD.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.