They say March comes in like a lamb and goes out like a lion. A State Street Global Advisors survey implies 401(k) investors might be mistaking their bond investments for lambs just when bonds may be about to roar like lions.
It's long been reported that bonds sit precariously on the precipice of historically low interest rates. Since the 2008-2009 economic calamity caused rates to fall to near zero—where they've virtually remained—investment experts have warned of the coming crash in bond prices. Predicting the crash is easy. After all, we all know that when interest rates rise (which is pretty much the only direction they can go at this point), long maturity bond prices fall. On the flipside, predicting the timing of the crash is hard.
We may finally be there, although not necessarily for the usual reasons. In general, as the economy improves, inflation grows and the demand for higher interest rate returns grows. As a result, interest rates rise. The events of last May suggest the long-anticipated taper on the part of the Fed also could generate higher interest rates. The bottom-line: long bonds may not be as safe as stocks.
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Christopher Carosa
Chris Carosa has been writing a weekly article and monthly column for BenefitsPRO online and BenefitsPRO Magazine since 2011 and is a nationally recognized award-winning writer, researcher and speaker. He’s written seven books, including From Cradle to Retire: The Child IRA; Hey! What’s My Number? – How to Increase the Odds You Will Retire in Comfort; A Pizza The Action: Everything I Ever Learned About Business I Learned By Working in a Pizza Stand at the Erie County Fair; and the widely acclaimed 401(k) Fiduciary Solutions. Carosa is also Chief Contributing Editor of the authoritative trade journal FiduciaryNews.com and publisher of the Mendon-Honeoye Falls-Lima Sentinel, a weekly community newspaper he founded in 1989. Currently serving as President of the National Society of Newspaper Columnists and with more than 1,000 articles published in various publications, he appears regularly in the national media. A “parallel” entrepreneur, he actively runs a handful of businesses, including a small boutique investment adviser, providing hands-on experience for his writing. A trained astrophysicist, he also holds an MBA and has been designated a Certified Trust and Financial Advisor. Share your thoughts and story ideas with him through Facebook (https://www.facebook.com/christophercarosa/)and Twitter (https://twitter.com/ChrisCarosa).
