Why Not to Buy Bond ETFs

 |  Includes: AGG, BND, PLW
by: IndexUniverse

By Jim Wiandt

I'm seeing waves of new products and strategies in the space, and I'm wondering why.

Along the lines of Matt Hougan's recent piece - can I take a head-first plunge into the wall of conventional wisdom we're running into right now? It's an ill-considered, fear-driven conventional wisdom reflecting a classic buy-high and sell-low phenomenon of investor mentality. All the talk right now is about capital preservation, hedging risk, avoiding credit risk and whatnot.

I'm going to let you in on a little secret.

The time to have been focused on capital preservation was about a year ago. If you weren't, you did not preserve about half of your capital and you sort of missed the boat on that, most likely. Could the market drop another 30%? Yeah, it could. But if that happens, you'll have much worse problems, like no job, dollar bills that may be more valuable as heat than currency, etc.

So think up an elaborate wealth preservation strategy if you want... and indeed, you could be right that bonds or CDs or Treasuries may outperform equities for some long time period going forward. But I'm not sure I'd bet the farm on that. What I'm seeing is a lot of assets priced at distressed levels ... and none more than in certain parts of the equities markets.

So, do think about risk, and think about being sensible with your investments, but don't let fear prevent you from seeing what may be a once-in-a-lifetime investing opportunity. Mainly, again, as ever, where you should be is with a good, well-thought-out savings and asset allocation plan. Now should be the easiest time in the world to feel good about it.