The primary advantage of holding a fixed-income asset in your portfolio is that it promises a steady level of income. Brokers and financial advisors will also tell you that these income sources are low-risk and in today’s market and that is lie. Because of the uncertain environment surrounding both equity markets and debt, in both the private and public market, these types of investments are now extremely risky. Especially, if you hold government bonds and the U.S. government defaults.
Simply put, the risk is real and should be noted.
In this article, we'll examine the various disadvantages of bonds, how they can potentially harm investors' financial well-being and what avenues of opportunity are available for those who want to exit the fixed-income market.
Debt securities like municipal bonds or corporate debt are attractive because they have long been considered safe ways to store money. Some of these investments feature competitive dividends and enough interest generation to drive investor demand. However, these "benefits" can become problems rather quickly due to the entitlements and liabilities that many businesses or governments – either local, state or national – have on their balance sheets. Individual investors could see portfolio strength virtually evaporate if these entities start to experience economic turbulence.
Connected to this issue is the fact that, in some cases, market-recognized prices and rates are guided by scores, which are set by globally accredited institutions such as Standard & Poor's, Fitch Ratings or small firms like Egan-Jones. When a country becomes over extended and their balance sheet doesn’t balance, these companies will downgrade a country’s credit rating. Doing this will cause the country to have to pay more interest and decrease the value of their bonds. Printing more money also crushes any chance of a reasonable return because the returns now cannot keep up with inflation or the devaluation of the countries' currency.
If this is the case, how can an investor safeguard his or her money? Cash flow real estate, which involves utilizing rent-based properties to generate monthly income, presents an opportunity for individuals to place their money in an asset class that has seen demand soar in the past two years. Those interested in this type of investment should call a professional wealth preservation organization to learn more or schedule a "Game Plan" with GreatWealthStrategies.com.