October 2, 2014
Another common concern is the fear of investing money in bond funds. I asked the group, “How many of you are uncomfortable investing in bonds, due to the fear interest rates rise?” Most of the group agreed. I then asked, “How many are afraid of investing in stocks?” Only two raised their hands. I found this a shocking response because the fact is, in terms of risk, the likely losses in stocks are 10 times the likely losses investors might sustain with bonds.
Why are so many people afraid of losing 5% while comfortable owning investments that are likely to lose 50% of their value? I think it’s because of the parade of pundits and press – It seems the louder they yell, the more they are believed. Recently the loudest “xperts” are warning of losses in bonds while recommending stocks.
I hope that you can ignore the rumble of the herd and follow the proven academic strategy that I propose, which is to buy-and-hold a widely diverse portfolio of bonds and many equity asset class funds.
On this note of diversification, I thought you might be interested in seeing the Callan Periodic Table. The purpose of this colorful table is to help investors see how wild the ride can be for any individual asset class. Some asset classes seem to spend lots of time at the top or the bottom (emerging markets) while others are distributed throughout the table (Russell 2000 Growth). Imagine trying to be the guru whose job it is to predict what will be hot next. Can you find a pattern that will help you pick next year’s winner?
Until next time, to your success,