Fixed-Income

Richard C. Young & Co., Ltd. gains fixed-income exposure through investments in U.S. Treasury securities, low-cost, no-load, no 12b-1 bond funds, individual municipal bonds, and preferred securities. Fixed-income securities are necessary to the diversification of most portfolios. Diversification is a powerful ally for successful long-term investing and comfort.

  • Treasuries: Your money is 100% invested in U.S. Treasury securities -- regarded by many investors as the safest investment in the world and backed by the full-faith-and-credit pledge of the United States Government. We analyze economic, monetary, and market variables to help determine an ideal strategy to meet the program's objectives of income and/or capital preservation.
  • Bond Funds: Bond mutual funds provide investors with the scale required to build a diversified portfolio of fixed-income securities that are typically only available to large institutional investors. We focus on no-load, no 12b-1, low-cost bond funds.

  • Municipal Bonds: We focus on AAA and AA rated municipals. For investors in the highest tax brackets, municipals offer yields on an after-tax basis that are competitive with and sometimes exceed the yields on U.S. Treasury securities of similar maturities.

  • Preferred Securities: Preferreds are income-generating securities. Much like bonds, each preferred has a credit rating, a call date, and many other important components to evaluate. Unlike corporate bonds, the commissions on preferred securities are transparent to investors.

Preferred Securities

For years, we have advised the purchase of investment-grade preferreds. High-yielding, investment-grade preferreds are a prime target for savvy, yield-conscious investors. Today, the environment for preferreds is challenging. Few new issues meeting our criteria are coming to market during a time when many of our long-time favorites are being called. The playing field is sharply narrowing.

Preferreds are long-term securities. There is no such thing as a short- or intermediate-term preferred. When you invest in preferreds, you must be comfortable with this at the start or you do not invest in preferreds. And you need to understand that, when rates jump, the jump has nothing to do with your interest payments and cash flow. However, interest rate increases do lead to temporary declines in values. When you invest in preferreds, you invest for a steady stream of income from dividends.


In 12 of the 13 years that the S&P 500 has been down since 1950, intermediate-term government bonds advanced. That's a .923 batting average. And in the only exception year, intermediate-term government bonds were down a scant 0.74%.

Strategy - Counterbalanced Total Returns

 

The chart below shows annual returns of Dodge & Cox Balanced and Vanguard Wellesley Income funds. Each fund contains a mix of stocks and bonds. The returns assume an investment of 50% in Dodge & Cox Balanced Fund and 50% in Vanguard Wellesley Income Fund, with annual rebalancing. From 1995 through 2006, the combination has not experienced a down year.

Vangaurd Wellesley Income and Dodge & Cox Balanced

The figures appearing above do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment-management fee, which would lower these figures.