Believe it or not, both short and long term interest rates are at a 5,000 year low. And no, that is not a typo. No wonder there is a global search for income! We are discussing how to find reliable income producing investments for retirement. Thornburg Investment’s Five star rated municipal bond manager, Chris Ryon and fixed income guru Martin Fridson reveal their secure income strategies.
WEALTHTRACK Episode #1206; Originally Broadcast on July 31, 2015
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Depending upon whom you listen to the Federal Reserve is on track to hike interest rates in September, from zero, for the first time since 2008, or it isn’t. There is enough evidence on both sides of the argument to make it a tossup. Either the economy, employment and inflation are strong enough to justify beginning soon, or they are not. I do not envy Janet Yellen or her colleagues on the FOMC (Federal Open Market Committee) who have to make the decision. They have three scheduled shots at it left this year. September’s FOMC meeting is on the 16th and 17th, October’s is on the 27th and 28th and December’s is on the 15th and 16th.
As a journalist I am the fortunate recipient of research from some of the financial industry’s top firms. One of the headlines that caught my attention recently came from Bank of America Merrill Lynch. It read: “The Lowest Interest Rates in 5000 Years.”
I knew that rates were at record lows but I had no idea that the record went back five millennia! That’s what I call putting today in historical context. It is no wonder that there is a global search for income.
Of course, not all interest rates are trading at record lows. Indeed some have been going up, especially where there is trouble.
Take triple tax exempt municipal bonds issued by Puerto Rico, whose credit rating was reduced to junk status last year. The U.S. territory is the third largest municipal bond issuer in the country, after California and New York, despite the fact that its population is the size of Oklahoma’s and its GDP is smaller than that of Kansas.
Unfortunately it is broke, which is why its rates have soared.
Luckily, issuers such as Puerto Rico and Greece are the exception, not the rule. Government and corporate bonds have been in a three decade bull market, driven higher as interest rates fell, which led stock investor Warren Buffett to opine as early as 2012 that “bonds should come with a warning label.”
Should they? Where else can you go for income?
On this week’s WEALTHTRACK, two investment pros will give us their insights. We’ll be joined by Martin Fridson, Chief Investment Officer of Lehmann Livian Fridson Advisors, a wealth management firm specializing in income investing for high net worth individuals. Fridson is a recognized expert in fixed income. Once dubbed the “Dean of the high yield bond market”, he was the youngest person ever inducted into the Fixed Income Analysts Society Hall of Fame.
We’ll also hear from Christopher Ryon, a municipal bond portfolio manager at Thornburg Investment Management. Among the multiple funds that he manages is the Thornburg Limited Term Municipal Fund, rated five-star by Morningstar. Before joining Thornburg in 2008, Ryon was the head of the Long Municipal Bond Group at Vanguard Funds, where he oversaw the management of more than $45 billion dollars in 12 intermediate and long-term muni funds.
As always, if you miss the show on Public Television, you can watch it on our website. You’ll also find EXTRA interviews from both Ryon and Fridson. Ryon will give us the background story on Puerto Rico’s financial mess and Fridson will share how he switched from high yield guru to the search for reliable income from many sources. They will each also provide us with their One Investment ideas for a long-term diversified portfolio. In my Action Point this week I have some advice about how to diversify your income sources.
Have a great summer weekend and make the week ahead a profitable and a productive one.
DIVERSIFY YOUR INCOME SOURCES
FRIDSON: Diversifying With Dividend Growing Stocks and Preferred Securities
RYON: Diversifying Within Municipal Bond Portfolios and Through Laddering Their Maturities
No Bookshelf titles this week.
RYON: INCOME PROVIDER
- Buy intermediate-term municipal bonds
- 12-20 year maturity
- Picks up 80-90% of income of long maturity bonds with 65% of interest rate risk
FRIDSON: LIQUIDITY BUFFER
- 5-10% of portfolio
- Short-term corporate bonds & short-term municipal bonds
[tab]No stock mentions in this episode.[/tab]
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[tab]Additional appearances by Martin Fridson from the WEALTHTRACK Archives:
RYON: PUERTO RICO’S PROBLEMS
How did Puerto Rico, the 3rd largest issuer of municipal debt in the U.S. get into the situation where it cannot pay its bills or meet its debt obligations? Thornburg Investment Management’s 5 star municipal bond fund manager, Christopher Ryon gives us the low down.
FRIDSON: INCOME VARIETY
For year Martin Fridson was considered to be the guru of high yield bonds, an area he became a specialist in as a bond analyst and strategist at major Wall Street firms. However in 2013 he launched a new wealth management firm specializing in income investing from a wide variety of sources. Why did he make the switch?