Outcome Unforeseen

Three drills must be mastered by a sailing crew before they set sail and head for open water; “Fire”, “Man Overboard” and “Abandon ship”.

Yesterday, the involved crew’s "Man Overboard" resulted in a disillusioned crew member being stolen from the clutches of the watery depths of despair unharmed. Who, after a luminary accord with our Captain has returned to training under watchful eye.

Right now in the US (and elsewhere), people have been scared away from investing in stocks and real estate. As a result, they have been moving in record numbers into bonds.

“The masses have been buying bonds in record volumes at record high bond prices”.

This is one of the reasons interest rates can be held so low and why bond prices have been pushed to such heights.

Bonds have interest rate risk, which is what we have been talking about (risk interest rates will go higher), but also “inflation risk” and “default risk”.

The last two are significant, in these times more than ever.

If you don’t like stocks or realestate and bonds as suggested may not be a good place to sail into, then what do we do?

So, what to do?.......Great question.

First, please don’t throw yourself overboard, start a fire or otherwise try to sink the ship.

Second, now is a great time to take a look at your portfolio and just get an idea of how much you have in bonds and especially longer term bonds (3 to 5 years and over)… just look.

As an example, you may have a bond fund or a balanced fund with a portion invested in bonds.

So before you start eyeing the other side of the railing and develop a longing for the cool watery depths remember, we are on an adventure and it’s supposed to be a little scary with the outcome unforseen.

On to the next drill station……