The Pros and Cons Of Bond Alternatives ; Some Can Do Well Amid Economic Recoveries
Soured on bond investments now that you've learned that principal values get hit when interest rates rise?</br></br>There are other options for income-oriented investors. And some of these alternate investments tend to do well in an economic recovery (despite rising interest rates and depressed prices of some fixed-income investments).</br></br>But investors be warned: Most of the options that offer reasonably high yields still put your principal at risk. The ones that don't usually pay paltry returns. That said, here's a look at the options for income-oriented investors who would like to take a hiatus from bonds.</br></br>Pros: REIT shares pay generous dividends - they're required to distribute 95 percent of their net income to shareholders each year. Additionally, their share prices tend to rise when the economy improves. That's because they invest in shopping centers, apartments and office buildings that rent more easily - and at better rental rates - when companies are expanding and retailers report brisk sales. The properties owned by REITs also become more valuable in a recovery.</br></br>Cons: Share prices and dividend yields get hit when the economy sours or when the commercial real estate market is overbuilt. While REITs boast an average annual return of 13.8 percent over a 20-year period, their bad years can be pretty grim. When the real estate market soured in 1990, for example, REITs posted a total loss of 17.35 percent even after taking into account the 11.34 percent dividend yield that year, according to the National Association of Real Estate Investment Trusts in Washington.