Are Bonds Safe?

Posted in: Economics, General, Just For Fun, Stock Market, Thought of the Week

Since the start of June 2013, it seems as though every major media outlet is talking about the end of Quantitative Easing (QE) and what a rise in interest rates will do to our economy. In 1994, interest rates rose so high so quickly that investors tried to sell a massive supply in a very short time period and bond prices tanked. Many market experts are predicting the burst of a “bond bubble” and even a potential repeat of 1994 when the Fed finally changes its direction and increases interest rates.

Our investment committee agrees that bonds could suffer substantial losses, but we do not believe that the effects will be as bad as the media portrays. Given the potential risk in owning bonds, proper positioning within fixed income is vital in keeping your bonds safe. For instance, our investment committee has reduced our fixed income holdings from 70% in 2010 to just below 30% today. We feel that there is an opportunity in fixed income. Specifically, bonds that are high yield with shorter dated maturities.

Read this week’s Thought of The Week to learn more about owning bonds going forward and how to position yourself to reduce risk for a potential “bond bubble”.

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As an Investment Advisory Representative working in conjunction with Global Financial Private Capital (GFPC) we are provided weekly thoughts on what is happening in the economy and the market.  Written by our investment committee at GFPC we find these thoughts to be informative and interesting.