Please, Please, Please Get Out of Bonds

On a good day, bonds underperform stocks.  On a bad day, when interest rates start to rise, fixed income assets fall because of the rising rates, and companies start to go bankrupt because of the decline in industrial activity caused by the rising rates, bond investors get killed.  Add to that a little inflation, and you really have a lot of pain and suffering in the bond market.

We are entering one of those times.  Bond yields are insanely low because the Federal reserve has kept its rates so low for so long.  The economy is slowing as the Affordable Care Act starts to be implemented in earnest and consumers are starting to realize how much a bite it will take out of their wallets.  And yet, inflation is starting to roar with food inflation up about 20% this year due to all of the money the Federal Reserve has been printing that it had hoped to be able to keep in the bank vaults.

This is no time to be anywhere near a bond or anything that looks like a bond.  Equities will help protect you against inflation since the companies will just raise their prices as the dollar becomes worth less than it was before.  Equities will decline initially as interest rates rise and the economy slows, but eventually equities will be the only place to be for an inflation hedge.  (OK, real estate will work too.)

And while you’re at it, lock in your mortgage and any other loan while we have these insanely low rates.  We may be about ready to revisit the double-digit rates of the early 1980’s.  We’re in for a bumpy ride – strap in.

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Disclaimer: This blog is not meant to give financial planning advice, it gives information on a specific investment strategy and picking stocks. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.


    • It is very hard to predict timing ont hese types of things. Interest rates are low and they have no where to go but up, but that doesn’t mean they will go up right away. Food inflation is starting to pick up, however, which may force the Fed to raise rates sometime soon. I’d say lock in as soon as you can within reason.

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