Friday Dec 18, 2009
The current rush to bonds could be a disaster waiting to happen. So far this year, investors have moved 61 times more money into bond mutual bonds than stock mutual funds. Since bond values are tied to interest rates, bond values have no place to go but down. Out-of-control government spending can bring about several negative scenarios for bond values. Interest rates can move higher because foreign investors decide to scale back buying our debt. Also, interest rates can move higher with inflation and the devaluation of the dollar.
Apparently investors aren't aware of the significant risks of loss when investing in long -term bonds (even Treasury bonds). The truth is that bond values can plunge in value just as much as stocks. Most advisers don't tell their clients about this risk.
When I see investors all running int he same direction, a warning needs to be issued! In this "lemmings cycle" I believe many are going to get hammered. Protect and defend yourself!
(note: Jan 20, 2010; I'm still sticking with this prediction....though it will not be in the first 6 months of this year. Realize like all investment advisors I don't have a crystal ball. This is my opinion)
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