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The Importance Of Quality In Diversification

Saturday, February 18, 2017 22:35
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by Gene D. Balas

When investors diversify their equity portfolio by adding bonds, not all bonds are created equal in this regard. Certainly, corporate bonds, including both high yield and investment grade, do pay a yield premium over Treasuries. If you’re after income, that might be a worthwhile consideration, but if you’re focused on providing a means of diversification to stocks, you might want to emphasize quality. And that means Treasuries, as even AA-rated corporate bonds can impede levels of diversification vis-a-vis bonds that carry no credit risk, as we will see.

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Source: http://econintersect.com/pages/investing/investing.php?post=201702182308

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