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Jim Van Meerten
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Jim Van Meerten is an advisor to Marketocracy Capital Management and writes on financial subjects here and on Barchart Portfolio Blogs and Seeking Alpha. He earned a BS in Accounting and Business Administration from Berry College; a Juris Doctorate from the Woodrow Wilson School of Law; and... More
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  • Get Out Of Bonds! 4 comments
    Mar 22, 2013 12:04 PM

    There are several major asset classes in the investment markets: stocks, bonds, real estate, commodities, precious metals and cash. Although you cannot time the market you can read the writing on the wall and change the weighting within your portfolio to the changing economic conditions. Right now I think it's obvious that bonds have a much, much greater risk to your portfolio than any other asset sector.

    My leading motto is: " I'd rather be approximately right than precisely inaccurate". Right now bonds have little upside potential and enormous downside risks so why would any rational investor buy bonds at this time??

    Whether you agree with me or not there is a review I would highly recommend at this time. At least review your portfolio, IRA and 401K and quantify your exposure to bonds. Review for the following:

    • Bonds -- the longer the maturity date the higher your risk
    • Bond Funds -- again the longer the duration of the portfolio the greater the risk
    • Balanced Funds -- do you know what the ratio of bonds is in the portfolio? The higher the ratio of bonds the higher the risks
    • Income Funds -- how much of the income comes from dividends and how much from interest? The higher the ratio of income from interest the higher your risks
    • Target Date Funds - Normally the ratio of stocks to bonds changes the closer you get to the target date. The closer the target date the higher your bond risk is.


    I would be a fool to predict when the bond bubble will burst - I have no idea if it is tomorrow, next month or next year but I can predict that it will happen. The one given is the longer you stay invested in bonds the more risk you portfolio is taking.

    Don't say you weren't warned.

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Comments (4)
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  • notaexpert
    , contributor
    Comments (198) | Send Message
     
    How can you lose on bonds with a good credit rating?

     

    You collect the interest and in the end you get the principal back?

     

    What Risk am I missing other than inflation?
    1 Apr 2013, 12:38 PM Reply Like
  • Jim Van Meerten
    , contributor
    Comments (650) | Send Message
     
    Author’s reply » You are correct only if you hold all your binds to maturity and never sell one. If you need to liquidate you have no idea what price your bonds will bring in the future. Right now it looks like less
    1 Apr 2013, 01:26 PM Reply Like
  • Qniform
    , contributor
    Comments (2654) | Send Message
     
    While in general I agree and have altered maturities in my fixed income allocation, I have not changed the overall weight. Similarly, I have gone more defensive in equities and added hedges, but have not changed the portfolio weighting. Your motto doesn't account for well-researched underperformance of timing strategies.

     

    BTW - I think equities represent far more risk to capital than bonds. What scenario do you envision that would produce 60% drawdowns in treasuries? Even a 30 yr. maturity would require an unprecedented instantaneous rate hike to hit that mark.
    2 Apr 2013, 06:28 PM Reply Like
  • Jim Van Meerten
    , contributor
    Comments (650) | Send Message
     
    Author’s reply » If you plan to hold every bond to maturity then no problem. Bad thing happen to good people so if a change in your financial plan might cause you to liquidate some bonds you never know what you net will be,

     

    On you comment on timing strategies - I have found the 50/100 day MACD Oscillator to be a very good timing device for overall market moves.

     

    My personal sell discipline of 10% or the 50 day moving average on individual holdings has proven over time to be very effective
    3 Apr 2013, 11:19 AM Reply Like
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