Learn Why The Bond Bubble Is Here

A lot of experts are now predicting the burst of the "Great American Bond Bubble." In an August 18, 2010, Wall Street Journal article, Jeremy Siegel, a Wharton professor of finance, warned, "If 10-year interest rates, which are now 2.8%, rise to 4% as they did last spring, bondholders will suffer a capital loss more than three times the current yield." Professor Siegel goes on to advise that, "Stocks, specially stocks paying high dividends, may offer investors a more attractive income plus inflation protection than bonds over the coming decade."

Other experts are and issuing caveats regarding bond investing, given our current economic situation. An August 23, 2010, CNBC "Newsline" segment featured an interview with Peter Schiff, President of Euro Pacific Capital, Inc., who stated that this is the "worst decade for bonds." On that identical segment, Marc Faber, fund manager and editor plus publisher of the "Gloom, Boom, as well as Doom Report," offered a similar caveat.

So, what's an investor to carry out? In particular, an investor who has income as 1 of his investment goals? Bonds have traditionally represented a significant percentage of this investor's portfolio. As Professor Siegel suggests, stocks with high dividend yields will provide the investor with both current income also the much-needed inflation protection, given the present economy. Still, losses from our stock market investments in the not-distant-enough past are still stinging. Therefore, you may be surprised (and happy) to realize that there is an investment strategy that can both add to the income you earn on your stock portfolio in a stable market plus cut your losses in a falling market.

This strategy is known as covered call writing. Writing covered calls is a conservative tactic in which you, as the stock owner, sell the suitable to purchase your shares to the buyer of your opportunity. The price at which the opportunity buyer can purchase your shares is specified in the selection, also there is an expiration date on the choice, which means that the option buyer has a limited time in which to working out his option to purchase your shares. In return for writing (or selling) this option, you receive the choice premium-or the price that the opportunity buyer pays for this accurate. This augments the dividend income in your portfolio. If the price of the stock stays relatively stable, you can continue to write options as well as accumulate even more income. If the price of the stock falls, the income will serve to offset every losses incurred.

So, if you're traditionally a bond investor with a would like meant for current income, but you plus desire to protect yourself against loss of purchasing power, you should definitely sit up and take note of this well-respected strategy.

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