Q: I see that bond investments have dropped lately. Is this a good time to buy bonds?
A: Bond prices tend to drop as interest rates rise, because new bonds are issued at higher rates, making older bonds less attractive in comparison.
Interest rates may well keep rising, so bonds may drop further. Keep in mind, too, that over most long periods, stocks have outperformed bonds.
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Despite all that, bonds still belong in most people’s investment portfolios, as they offer diversification. Many folks with balanced portfolios have seen their stock returns offset losses from bonds.
So what should you do?
Well, know that there are many kinds of bonds. If you expect interest rates to rise, you might invest in shorter-term bonds instead of ones that lock you into a rate for decades.
You might also opt to invest in actual individual bonds instead of bond mutual funds and ETFs, because if you hold them to maturity, you’ll get your principal back. (Funds and ETFs offer diversification, though.)
Another possibility is to invest in CDs instead, as they can offer interest rates competitive with high-quality bonds while being guaranteed by the government, too. You can look up CD rates at bankrate.com.
Dear Fool: My dumbest investment was in the dry bulk shipping company DryShips. I believed its story for two years. That has been my biggest loss, and one I’m not going to forget.
The Fool responds: DryShips has had many believers over the years and still does. Its stock has been roughly halved, on average, in each of the past five years.
The lesson it offers is to look closely at many factors when evaluating a company.
Its revenue has been growing in recent years, but its bottom line has been in the red.
The company’s debt load has more than quadrupled over the past few years, which doesn’t bode well, given its negative free cash flow.
But it’s also worth keeping in mind that the dry bulk shipping business is a cyclical one, and thus business is likely to pick up in coming years.
Still, investors can likely find less risky and more compelling stocks.
In late July, Rhode Island-based Hasbro (NYSE: HAS) reported lackluster second-quarter earnings, with revenue down 6 percent and earnings down 12 percent.
Dismissing the stock would be premature, though, as Hasbro has a lot to offer. Even in the lackluster quarter, revenue in its Games category gained 19 percent while its Girls category surged 43 percent. (Meanwhile, Mattel’s Barbie line has been posting successive sales declines.)
The Boys category dropped 43 percent, but may get some relief via the renewal (through 2020) of Hasbro’s contract to license thousands of Disney-owned Marvel characters (such as Spider-Man, the Avengers and Iron Man), as well as the Star Wars brand.
It has also licensed many of its games (such as Monopoly and Clue) to video game-maker Electronic Arts. Hasbro is also a partner in The Hub, a TV network.
The stock recently offered a 3.6 percent dividend yield, with its payout having doubled over the past five years.
The company has recently upped its stock-buyback plans by $500 million, which will reward shareholders by spreading its profits over fewer shares.