It was a stormy week for stocks and bonds as indexes were rocked by the uncertainty of Greece’s fate, the near-$4 trillion rout of Chinese stocks, the hours-long halt on the NY Stock Exchange, grounded United Airlines planes, and tumbling oil industry shares. With stocks rising and falling 1% to 1.5% in a day, one might easily think that his portfolio was bouncing about in similar fashion.
It’s been a choppy week for Treasurys and stocks with Greece once again roiling European Union stability and mixed signals about the strength of the US economy. The question every investor is asking is when the Federal Reserve will begin raising interest rates? And advice is becoming louder and more widespread.
At some point, the Federal Reserve will begin the measured process of raising interest rates. No one denies it. The unprecedented condition of near zero rates must be manipulated back to levels deemed ‘normal’ and soon as the economy continues to improve. Another undeniable fact is that as interest rates rise, bond prices will fall. So doesn’t it make sense to get out of bonds? Everyone else seems to be doing so. Let’s address what most others are doing first. It seems quite logical to sell an asset in advance of an almost certain decline in value. It also seems right if you were holding bonds as a good investment for safe income. When it’s no longer
You know from your July and August statements just how badly the markets mistreated long-term investors. A few statistics from Credit Suisse First Boston help put the period into even better perspective. A record $29 billion was removed from mutual funds in July 2002. Stock funds experienced record outflows, while bond funds enjoyed record inflows. Net outflows from equity funds in July 2002 were almost twice as large as those during September 2001, and more than five times larger than those during August 1998. Every style of equity funds was affected by investors’ withdrawals in July.