You know what bothers me more than anything? That too many investors are just sitting there hiding in their Bond Bunkers. Paralyzed by the fear created by two sharp market collapses, and two economic recessions, they’re investing heavily in bonds.
That’s not just my opinion. It’s in the numbers …
In the four years from 2009 through early 2013, investors poured a stunning $1.4 trillion into bond mutual funds and bond ETFs. That was even more money — a LOT more — than the $880 billion that flowed into stock funds during the late-1990s Nasdaq bubble. It also brings to mind the massive investor frenzy for a different asset class — real estate — in the early 2000s.
The problem with the Bond Bunker theory of investing is simple. Bond yields are near record lows, even after last year’s advances. They offer way too little return in exchange for all the risks you’re taking on when you invest in fixed income: Inflation risk, credit risk, currency risk, and more.
|Companies developing the technology for hands-free driving are in the right place at the right time.|
Worse, because of the way bond math works, even a small increase in rates can crush you in this environment. That’s precisely what we saw last year, when many bond funds suffered their worst year since 1999. The biggest bond fund on the planet, run by PIMCO, did even worse — turning in the most dismal performance in 19 years.
At the same time too many investors are embracing bonds, certain sectors of the stock market — like technology — are hitting the ball out of the park. Cloud computing and mobile communications companies — firms that give you the power to guard your online privacy and that are on the cutting edge of developing smart cars, even those working on designer medicines or pilotless airplanes — are looking particularly attractive because they’re in the right place at the right time.
Now I’m no tech stock expert. My specialty is rate-sensitive stocks, real estate shares, and “safe money” names. But I don’t have to be. That’s because I’m lucky enough to know Jon Markman, who recently joined the Money and Markets team.
Until next time,