The Secret to Recession Investing

Today's Financial News - Posted October 3, 2008

With the markets in constant flux, government bailouts supporting Wall Street, and threats of a major economic slowdown, are bonds a better investment than stocks? Stock and bond analyst, Andrew Snyder explains how to attain a steady stream of passive income through corporate bonds.

Watch this video…

by Krista Das

Baltimore - (TFN): Looking for a steady stream of passive income? As stocks plummet many investors are turning to corporate bonds. Joining us today is stock and bond analyst Andrew Snyder who writes for Hot Stock Confidential.

With the markets in constant flux government bail out supporting Wall Street and the threats of a major economic slowdown, are bonds a better investment than stocks?

Andrew Snyder: I’m not sure if better’s the best word in this case. Bonds are a very important part of a balanced portfolio. You need the bonds there to support the equity positions you’re going to get to build the real profit potential.

Bonds are, they’re very safe. They pay payouts twice a year and they do have some decent profit potential, especially right now.

****View the video here… Andrew Snyder on TFN Market Insights

Krista Das: Andy, is it true that most safe bonds come with minimal interest rates and have little profit potential? Why invest in a bond paying four percent when the company’s dividend is four percent or more?

Andrew Snyder: Well, the point with the bonds is the payouts are pretty much guaranteed. With stocks and dividends they come and they go. Right now with the – the economy’s starting to look like a pretty good recession coming ahead, dividends might not be there. Revenues are going to start to go down. That money’s not going to be there, but those bonds will be there and their value will always be there.

Krista Das: You mention that bonds are fairly safe investments. Why do I hear the term junk bonds so often? What are these? Are they safe?

Andrew Snyder: Well for the most part they’re safe. Just like you and I have credit ratings, corporations have credit ratings from companies like Moody’s and Standard & Poor and when their credit ratings start to drop because of a potential bankruptcy or a black spot on their credit history from previous bond issues, they get low credit ratings and then their bonds are considered junk to the markets.

But a lot of those bonds still have really good profit potential. The further down they go the bigger the potential can be. So if you do your homework you can really, really make some money off them plus get their payments every six months.

Krista Das: I see. So what are some of the best bonds out there right now?

Andrew Snyder: Right now I like Harrah’s, the casino company. GM has some really good bonds out there and their credit rating has been bumped down, but they’re starting to turn things around and come back up.

There’s another company called American Media that has some interesting bonds. Go online, check out their different offerings and invest in the ones that are right for you.

Krista Das: Now if an investor does not want to get involved in the sometimes complicated world of bond investing, what other options could they try?

Andrew Snyder: Well there’s lots of options out there. Two of the best ones are mutual funds. There’s lots of funds that invest in various sorts of bonds. Talk to an advisor, figure out which ones are best for your portfolio.

Then there’s ETFs. These just follow bond indexes or whole bond funds. One of my favorites is the Vanguard short-term fund. It’s a symbol BSV and it has a lot of two year treasuries in it right now, which it pays about four percent every six months and it’s doing pretty good. Good opportunity.

Andrew Snyder writes for Hot Stock Confidential.

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