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Jonathan Clements is an author and former columnist at the Wall Street Journal who now writes the popular U.S. investing site Humble Dollar. In the recent post “Farewell Yield,” Mr. Clements tackled the important implications of low bond yields for portfolios.

Mr. Clements first recommendation is to abandon government bonds, which might be an unsettling bit of advice for conservative investors.

“It’s time to say goodbye to the notion of a safe yield,” he writes. “Stocks are now the only option for long-term investors hoping to clock significant gains in the financial markets.”

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The author goes on to note that high quality corporate bonds have after-tax yields barely exceeding inflation expectations. He points to [admittedly dated] research by late economist Peter Bernstein. Mr. Bernstein’s calculations showed that portfolios weighted 75 per cent to equities and 25 per cent to cash had historically similar risk reward profiles to the benchmark 60 per cent stock, 40 per cent bond portfolios.

Mr. Clements second suggestion to buy an annuity will be contentious for fee conscious investors.

He argues, however, that the yield on annuities is not solely based only on bond yields – longevity, which hasn’t changed with bond markets, also figures prominently. As a result, annual payments on annuities now exceed 10-year bonds by a considerable margin.

The column is written from a U.S. perspective, but a quick check on domestic annuities shows that 10-year average annual payments of over 4 per cent are available. The 10-year government of Canada bond currently yields 0.58 per cent. The suitability of annuities is, of course, far more complicated than this simple math and requires more research. But, on the surface, the comparative returns are worth the time to investigate.

I would add that income-bearing equity sectors like utilities and REITs will generate premium price-to-earnings valuations relative to the overall Canadian equities market for as long as bond yields stay at these depressed levels.

All of these suggestions fall apart if bond yields begin to march higher, as strategists at Morgan Stanley believe. The balance of probabilities, however, continues to suggest extremely low government bond yields for the foreseeable future and investors must begin to think of strategies to maintain return expectations for retirement.

-- Scott Barlow, Globe and Mail market strategist

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This is the Globe Investor newsletter, published three times each week. If someone has forwarded this e-mail newsletter to you or you’re reading this on the web, you can sign up for the newsletter and others on our newsletter signup page.

Stocks to ponder

Interfor Corp. (IFP-T) Earlier this month, four analysts revised their expectations for this lumber stock – all higher – and it now has a unanimous buy recommendation by six analysts. Strong U.S. new home sales data reported this week was positive news for the company given that the majority of Interfor’s sales come from south of the border. However, with the share price up 16 per cent over the past four trading sessions and rising coronavirus cases being reported in major cities across the U.S., the positive price momentum in the share price may pause. Jennifer Dowty profiles the stock. (for subscribers)

The Rundown

Has the comeuppance of the low volatility ETF arrived?

Pitched as a way for people to focus on stocks that bounce around in price less than the broader market, low-volatility exchange-traded funds have been a revelation over the past five years. Through good and bad years for stocks, through periods of falling and rising interest rates, they delivered better returns than ETFs tracking the S&P/TSX Composite Index. Until the mid-March market bottom, that is. Rob Carrick tells us more. (for subscribers)

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Demand plunge will spoil gold rally, says Metals Focus

Demand for gold will weaken this year as a surge in purchases by investors will not offset a dramatic fall in consumption by jewellers, industry and central banks, an industry report said on Wednesday. (for subscribers)

Runaway Nasdaq: A reason for caution is in the charts

Since hitting intraday lows on March 23, the Nasdaq Composite index has rebounded and pulled ahead of the S&P 500, but a technical market analysis suggests that the tech-laden index may be vulnerable to a deep retreat. Terence Gabriel of Reuters has more.

Others (for subscribers)

Wednesday’s analyst upgrades and downgrades

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Tuesday’s analyst upgrades and downgrades

Wednesday’s Insider Report: Director invests over $1-million in this depressed stock

Number Cruncher: Lower portfolio volatility with these 15 low-beta TSX stocks

Globe Advisor

Bond-buying programs push investors to junk

Big tech expected to shake up wealth management industry

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What’s up in the days ahead

Retail investors are looking for ways to juice returns amid the recent market rebound. Tim Shufelt will tell us about one method they are using. Plus, Rob Carrick will argue why it’s time to stop with all the vitriol toward free stock-trading apps that have become wildly popular with young adults.

Click here to see the Globe Investor earnings and economic news calendar.

More Globe Investor coverage

For more Globe Investor stories, follow us on Twitter @globeinvestor

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You may also be interested in our Market Update or Carrick on Money newsletters. Explore them on our newsletter signup page.

Compiled by Globe Investor Staff

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