What should we do? For investors who need some more income to meet their retirement goals, or who are looking to diversify the fixed-income part of their portfolios, it may be time to start thinking global. The fact of the matter is that interest rates in the US are at historically low levels, and the Federal Reserve has come out and said they are in no hurry to change that.For fixed-income investors, the 1%-2.5% that bonds are yielding doesn’t cut it. To generate much-needed income, investors have turned to high-yielding, dividend-paying stocks that, despite their current popularity, are ultimately stocks and can get crushed like any other stock (e.g., Citigroup, General Electric et al.)Foreign-currency bonds As such, investors may want to take advantage of cheap currencies and higher yields. If a 2% return is not enough to meet your needs, take a look at bonds that trade in foreign currency. While it used to be difficult to buy these bonds, nowadays most brokerage firms have the ability to purchase bonds in various currencies.For example, a highly rated (AAA) bond in Brazilian reals can yield over 8%. A similar bond in Australian dollars will be over 4.5%. What makes these bonds even more attractive is that the currencies have been weak of late against the US dollar; only do you get the high interest rate, you also have the potential to profit from the appreciation in the currency if some normalcy returns to the market.If you can get a 5%-8% interest rate and a stable currency, you are way ahead of the game and will be able to meet your retirement goals with even less than $1 million in the bank.For investors who want this exposure but are gun-shy about actually buying foreign-currency bonds, there are plenty of ETFs out there that can do the job. The iShares S&P/Citigroup International Treasury Bond Fund or the iShares JPMorgan USD Emerging Markets Bond Fund are both worth looking at.Global bond funds For investors who would rather not speculate in specific currencies, but would prefer professional management as opposed to the more-passive ETFs, one can invest in a global or an emerging market bond fund. This is a managed portfolio of bonds that are denominated in multiple currencies. The advantage of this route is that there is a paid manager who is an expert in currencies who manages the portfolio for you. In addition, since it’s a bond portfolio, you also get monthly interest payments. However, be aware that a fund like this can also lose money and is not guaranteed.
Dollar surge makes global bonds more attractive
Throw in a European debt crisis and all of the sudden the greenback is once again king currency.
What should we do? For investors who need some more income to meet their retirement goals, or who are looking to diversify the fixed-income part of their portfolios, it may be time to start thinking global. The fact of the matter is that interest rates in the US are at historically low levels, and the Federal Reserve has come out and said they are in no hurry to change that.For fixed-income investors, the 1%-2.5% that bonds are yielding doesn’t cut it. To generate much-needed income, investors have turned to high-yielding, dividend-paying stocks that, despite their current popularity, are ultimately stocks and can get crushed like any other stock (e.g., Citigroup, General Electric et al.)Foreign-currency bonds As such, investors may want to take advantage of cheap currencies and higher yields. If a 2% return is not enough to meet your needs, take a look at bonds that trade in foreign currency. While it used to be difficult to buy these bonds, nowadays most brokerage firms have the ability to purchase bonds in various currencies.For example, a highly rated (AAA) bond in Brazilian reals can yield over 8%. A similar bond in Australian dollars will be over 4.5%. What makes these bonds even more attractive is that the currencies have been weak of late against the US dollar; only do you get the high interest rate, you also have the potential to profit from the appreciation in the currency if some normalcy returns to the market.If you can get a 5%-8% interest rate and a stable currency, you are way ahead of the game and will be able to meet your retirement goals with even less than $1 million in the bank.For investors who want this exposure but are gun-shy about actually buying foreign-currency bonds, there are plenty of ETFs out there that can do the job. The iShares S&P/Citigroup International Treasury Bond Fund or the iShares JPMorgan USD Emerging Markets Bond Fund are both worth looking at.Global bond funds For investors who would rather not speculate in specific currencies, but would prefer professional management as opposed to the more-passive ETFs, one can invest in a global or an emerging market bond fund. This is a managed portfolio of bonds that are denominated in multiple currencies. The advantage of this route is that there is a paid manager who is an expert in currencies who manages the portfolio for you. In addition, since it’s a bond portfolio, you also get monthly interest payments. However, be aware that a fund like this can also lose money and is not guaranteed.