Our “Off The Wall” Blog
is now Monument #Unfiltered

Subscribe below to receive our unique, straight-forward, unfiltered wealth advice delivered straight to your inbox.

Hate Bonds? Try This.

U.S. News and World Report Smarter Investor

If you’re feeling apprehensive about investing in bonds, consider this fixed-income alternative.

The current interest rate situation makes purchasing bonds tricky at best. However, every complete and comprehensive wealthplan will include an allocation to investments that provide a fixed-income stream.

So if bonds are not the greatest investment right now, but investors should still allocate to fixed-income investments, what’s the answer?

Consider senior secure loans—loans secured by assets and senior in the capital structure of a firm—as a potential alternative.

First, investors must understand that there is a difference between a bond and a loan. A bond is essentially an IOU. An investor lends a company money in exchange for interest payments over the course of the loan and a promise to repay the loan at the end of some specified time period.

A loan is a contract with covenants designed to protect the lender (or investor). These covenants are essentially conditions that a borrower must conform to in order to stay in compliance with the terms of the loan. Basically, they are rules. Break the rules, and you default on the loan, and the lender can demand immediate repayment.

These covenants can be administrative in nature, such as the promise to be in compliance with the law, or financial, such as maintaining a specific financial metric like an interest-coverage ratio. They can also be restrictive in nature such as prohibiting the borrower from paying a dividend over a certain amount to equity holders.

That brings us back to senior secured loans. These loans represent the most senior obligations of a company. They’re the ones paid off first in the event of a bankruptcy. They are senior to senior unsecured loans, high-yield bonds, mezzanine loans, and equity holders.

Additionally these loans have the first claim on all of a company’s assets such as accounts receivable, inventory, cash flows, and “PP&E” (plant, property, and equipment). This makes them less risky than bonds—and especially stocks.

A real world example is General Motors. When GM declared bankruptcy, equity holders lost all of their money. Bond holders got back about $0.20 of each dollar they lent, but the senior secured lenders got $1.00 of each dollar back—all of their money back.

Many of these loans are tied to a floating interest rate like LIBOR, or the “London Interbank Offered Rate.” This should be helpful to investors in a rising interest rate environment.

Investors should look for portfolio managers who specialize in these types of loans for any allocation they make to fixed income going forward. Like any investment, moderation is the key, and there are various liquidity issues surrounding certain portfolios of senior secured loans.

However, a complete and comprehensive financial plan should outline the process for generating liquidity in any investor’s portfolio. Therefore, with a proper plan in place, having less liquid portions of a portfolio is not such a bad thing, especially over the long term.

Read the article on U.S. News & World Report here! >

David B. Armstrong, CFA, is a managing director and cofounder of Monument Wealth Management in Alexandria, Va., a full-service wealth management firm. Monument Wealth Management is a Registered Investment Advisor. David has been named one of America’s Top 100 Financial Advisors for two straight years by Registered Rep Magazine (2009 and 2010 based on assets under management) and has been interviewed by several national media sources over the past several years. David and Monument Wealth Management can be followed on their blog Off The Wall, their Twitter accounts @MonumentWealth and @DavidBArmstrong, and on their Facebook page. Securities and financial planning offered through LPL Financial, Member FINRA/SIPC.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendation for individual. To determine which investment is appropriate please consult your financial advisor prior to investing. All performance references are historical and are not a guarantee of future results. Asset allocation does not ensure a profit or protect against a loss.

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values and yields will decline as interest rate rise and bond are subject to availability and change in price.


Get Monument #Unfiltered: Our Free Private Wealth Newsletter

Our no B.S. wealth advice delivered 2x per month, max. Tuned specifically for busy, high-net-worth business professionals and investors who want straightforward advice without the fluff.


Please remember that past performance is no guarantee of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Monument Capital Management, LLC [“Monument”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Monument. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. No amount of prior experience or success should be construed that a certain level of results or satisfaction will be achieved if Monument is engaged, or continues to be engaged, to provide investment advisory services. Monument is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice.

A copy of Monument’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request or at www.monumentwealthmanagement.com/disclosures. Please Note: Monument does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Monument’s website or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.

Historical performance results for investment indices, benchmarks, and/or categories have been provided for general informational/comparison purposes only, and generally do not reflect the deduction of transaction and/or custodial charges, the deduction of an investment management fee, nor the impact of taxes, the incurrence of which would have the effect of decreasing historical performance results.  It should not be assumed that your Monument account holdings correspond directly to any comparative indices or categories. Please Also Note: (1) performance results do not reflect the impact of taxes; (2) comparative benchmarks/indices may be more or less volatile than your Monument accounts; and, (3) a description of each comparative benchmark/index is available upon request.

Please Remember: If you are a Monument client, please contact Monument, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services.  Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. Please Also Remember to advise us if you have not been receiving account statements (at least quarterly) from the account custodian.