Don't Be Complacent in Bonds
07/07/2010 0 comments
Michael Pollock writing in the Wall Street journal issues a caution that the bond market has some future concerns. If you own bond mutual funds, that part of your portfolio likely has come through the past few months' market turmoil in fairly good shape.
Many investment professionals worry that the huge stimulus the Federal Reserve and U.S. government have provided to the economy over the past few years will inevitably push up both interest rates and consumer prices. While the threat isn't imminent, it's not too early to take steps to protect the bond part of your portfolio from those twin demons in the distance.
Rising interest rates and renewed inflation would be a double blow to bond investors. When rates rise, the market value of existing bonds falls. And in an inflationary environment, the purchasing power of bonds' fixed income payments wanes.
This again highlights the need for diversification in an investment portfolio and that while fixed income will continue to be a place of safe harbor for a while, other asset classes will become more attractive over time.
labels:investment,Treasuries,bond,Equities,
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