Why Not to Buy Bond ETFs

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.

Comments

[Emerald:]

Useless article. No analysis.

Feb 12 11:55 PM

[oldman:]

what's a retired 75 year old invester to do? Any thoughts for fixed income?

Feb 13 09:47 AM

[donzelion:]

"What I'm seeing is a lot of assets priced at distressed levels ... and none more than in certain parts of the equities markets." Hmmm....well, if asset prices are at distressed levels because the assets are actually distressed, then how is that a recommendation to buy now?

Granted, the basic point of your article remains sound - people should have worried about capital preservation long before, and for investors young enough to wait for a recovery (could come in 2010, could come in 2020, but will eventually come) - now is a better time to buy than 2006, 2007, or 2008.

But the way i see it, it's always the "best time ever to buy" - and there's never a chance of missing the "opportunity of a generation" - if you know what you should be buying at any given time. Since I don't have such knowledge, I need better arguments to justify one investment over another.

Feb 14 01:50 AM

[granger:]

Bonds funds are OK for now in my opinion. But I am watching, first rate increase and I am gone (probably long time off)

other than that, I am just picking distressed stocks at good prices

Feb 24 04:45 AM

[The Bay Str...:]

This comment sounds like it's been written by an investment adviser. It seems to me that the issue of whether the market will go up or down is irrelevant. It wasn't so long ago that investors were told by their stock brokers to only invest money in the market that they could afford to lose. Please explain to me what's changed in the last twenty years. Sure, you'll be o.k. in twenty years. But the odds are that I'll be dead by then so that really doesn't do me any good. The strategy has become more important than the objective. The objective was always to preserve capital and make money or to make money and preserve capital. But it became all about the strategy and not the objective and the managers making money and not their clients. This same line of reasoning put forward here was everywhere when the down was 10,000, 9,000, 8,000, 7000...... I guess sooner or later you'll be right. But tell me in that crystal ball of yours when the Dow will be at 14,000 again and are you prepared to guarantee that? Surely, if you are that confident, perhaps you would underwrite the risk? Let me know.....

Mar 02 08:42 PM

[The Bay Str...:]

This comment sounds like it's been written by an investment adviser. It seems to me that the issue of whether the market will go up or down is irrelevant. It wasn't so long ago that investors were told by their stock brokers to only invest money in the market that they could afford to lose. Please explain to me what's changed in the last twenty years. Sure, you'll be o.k. in twenty years. But the odds are that I'll be dead by then so that really doesn't do me any good. The strategy has become more important than the objective. The objective was always to preserve capital and make money or to make money and preserve capital. But it became all about the strategy and not the objective and the managers making money and not their clients. This same line of reasoning put forward here was everywhere when the down was 10,000, 9,000, 8,000, 7000...... I guess sooner or later you'll be right. But tell me in that crystal ball of yours when the Dow will be at 14,000 again and are you prepared to guarantee that? Surely, if you are that confident, perhaps you would underwrite the risk? Let me know.....

Mar 02 08:43 PM

[JediMaster:]

I'm long BND!

Mar 25 08:07 PM