Monday, February 25, 2013

Do not Buy Bonds

I cannot that buying bonds or bond funds would be a very good investment at this point. I also think that they are far riskier than most people believe.

The bond bull market has been going on forever it seems. But these things can last far longer than anyone imagines. In a bond Bull Market, interest rates go down and the value of the bonds rise. It is important to remember in dealing with bonds is that interest rates and bond value go in opposite directions.

I see problems with bonds. First the interest rates are low. I do not see how anyone can make only money at these rates. This is especially true about government bonds.

At some point interest rates will have to rise and we will be in a bond bear market. In bond bear markets, interest rates go up, but value of the bonds goes down. (This means that you get interest, but bonds values sink or you lose capital.) This is going to happen at some point. The problem is trying to figure out when. It would probably happen quite suddenly.

You can default on bonds in more than one way. A way that Western governments seem to have chosen is to inflate their way out of debt. Historically, government bonds are a safe investment until they are suddenly they are not.

If you really need to buy bonds, the only thing I can suggest is short term bonds of very good corporations.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my site for an index to these blog entries and for stocks followed. Follow me on Twitter.

1 comment:

  1. I would agree bonds are not the place to be right now. The problem is where do you get fixed income from if not bonds.