Bond talk

Bond talk

Recent developments in the bond market and what you as an investor can do about it.

In 2011, it was bonds that were among the strong performers for investors. Municipal bonds were the way to go and if you had been watching the Suze Orman show then you would have had them in your portfolio. Experts have warned that there could be a collapse in the bond market this year. Let’s explore this further.

Shrewd investors have been warned that bonds may no longer be suitable for them. But, if you are really looking at a diversified portfolio, then bonds have to be part of it to mitigate risk. The real threat to the value of bonds is that of interest rates going up. But when you really think about it, bond yields have been falling for the past three decades.

Moreover, there was a low that was reached in January 2012 with a 1.8 percent low in 10-year treasury yields. Investors will have to concentrate on supervising their bond portfolios as the asset class should not be abandoned entirely. I know that investors have many options in front of them and they could shift their portfolio to having more dividend paying stocks.

But this will lead them to having more equity market risk. This is not a good thing and it depends on your appetite for risk too. For instance, retirees depend on a constant income stream and taking on more risk is not ideal for them. Bond ladders are something that investors should look into as well as they generate and income and provide flexibility.

The bond market is always going to serve an important purpose for investors as bonds generate income and offer diversification from equities.