Trump’s tweets and China trade talks seem to be the order of the day and the main perceived market mover, but it’s never that simple. The US economy is at the end of its latest business expansion cycle spanning almost 10 years, and an inevitable recession is due sooner or later.
Should I Buy Bonds?
Many investors, potential retirees, pension holders, and people with 401ks and IRAs will find themselves pondering if they should sell stocks and buy bonds at the onset of a financial crisis. Today we’re going to cover the pros and cons of shifting your funds into bonds.
Bonds are pretty safe, first of all. But sometimes, like now, they may not even keep pace with inflation. So an investor may have to decide whether they want to lock in a slight loss over 10 years or keep their money in riskier financial instruments and assets like stocks, mutual funds, and ETFs.
Not all bonds are created equal. Government bonds are pretty low yield and usually sit around 1 – 3%, and their yield and price all vary according to the interest rates set by the Federal Reserve. If Trump gets his wish and the Fed lowers interest rates even further, then you can believe that you’ll earn even less with bonds over the long-term, and it may be harder to sell them should you desire to down the road.
Corporate bonds, on the other hand, have higher yields, but are a lot riskier these days. Experts are advising against stocking up on this type of bond as corporations have the highest levels of debt in history. This makes a default or a bankruptcy on their obligations a serious consequence you will want to plan for ahead of time.
How Do Bonds Hold Up Over Time vs. Precious Metals
Ultimately, you can just sideline your cash if the stock market doesn’t appear to be on an upswing. Bull markets don’t last forever, and neither will the current one. If anything, a triple-top appears to be coming in on the Dow Jones, which is often a sign that the market will reverse course and enter a new trend.
But don’t think that you only have to have bonds or stocks, or just cash for that matter. Inflation is not likely to ever go down or be accurately reported (the official inflation does not match the avg price of a car year over year along with other indicators like rent and food), and if you lock your money into bonds, you can expect to have less purchasing power once your bond sells and you collect your money back, even with interest.
This is why gold and silver, historically undervalued at the present moment, hold such promise for all investors and retirees. Precious metals tend to do very well during economic downturns and are a good hedge against a quickly inflating currency, loss of reserve currency status for the US dollar, as well as a store of value and safe haven while the market is falling.