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Chasing Yield is Fool's Errand

The current interest on 10-year Treasury bonds is roughly 2 percent. So while T-bonds may be risk-free, they don’t offer much of a return. This has led many investors on a wild goose chase for higher yields. Unfortunately for some, this has resulted in their financial gooses getting cooked. What’s the alternative?

Many investments have decent return (yield) potential, but they also have higher risk. High-yield (junk) bonds, preferred stocks and master limited partnerships (MLPs) are good examples. While legitimate investments, they aren’t for everyone. The thing to keep in mind is that they are not substitutes for but rather compliments to T-Bonds in a properly allocated portfolio.

Sadly, there have been recent situations where unsophisticated investors have found themselves in inappropriate and in some cases fraudulent investments promising unrealistic returns. Things like private placements and non-traded REITs are often promoted by brokers as alternatives to risk-free investments. LPL Financial was recently fined several million dollars by the Commonwealth of Massachusetts for just this type of unscrupulous behavior (similar cases are pending in Arkansas).

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