“The best piece of advice I could give long-term investors today is don’t own bonds. And if you do own them, you probably ought to move out of them,” warns Charles Ellis, author of the classic “Winning the Loser’s Game: Timeless Strategies for Successful Investing,” reports Paul Farrell.
Farrell continues:
Get it? Do not own bonds. Sell. Move out now.[...]
Here are the numbers: “Right now the Federal Reserve is set on keeping rates down,” explains Ellis, because “the yield on a 10-year Treasury bond is under 2%. When yields go back to their historical average of 5.5%, an intermediate bond fund could go down 25% in value.”Knowing in advance when the bond crash will occur is very difficult, if not impossible. As one former top government official told me, "It could be tomorrow or 10 years from now." Nevertheless, it will happen and it is likely to be sooner rather than later. Once the signs become obvious, many will try to head for the exit doors at the same time, that's why you need to be out in advance. Once the rush starts, the decline in bond prices is going to be very fast.
Paul "...capitalism is killing our morals..." Farrell...quotes Charles Ellis? Strange bedfellows!
ReplyDeleteQuestion,
ReplyDeleteIf you own a bond and interest rates rise, I understand you take a capital hit. However, when you sell can't you just take the hit and reinvest at the new higher interest rate and there will be no lose in the long run. (ie. the original term of the bond)??