All this talk of a bond bubble has some investors close to retirement wondering if this means they should unload bond exchange traded funds (ETFs).
Funny thing that investors usually invest in bonds in order to curtail risk and avoid speculative bubbles. That makes bonds especially appealing to conservative investors and those in or close to retirement: you get your money back at maturity (unless the borrower defaults) and while you wait for that, you get interest payments, explains Matt Krantz for USA Today. [Bond ETFs Take On An Age-Old Problem.]
The issue now is that investors have flocked to bonds in droves, pushing prices higher and yields to the depths. When the Federal Reserve raises rates, it will reverse the two and investors will be at risk of losing their principal. [TIPs ETFs: A Surge In The Making?]
But what about retirees?
If you are setting up for retirement, you most likely did not buy your bonds in the last three years, which means you’re getting a decent yield. There is no reason to sell those and no reason to get into the equities market – unless you want to.
If you have bought bonds in recent years, watch the long-term trend lines and consider signing up for alerts to be notified of any crossover. It’s also been suggested that investors monitor ProShares UltraShort TBT 20+ Year Treasury (NYSEArca: TBT) for any signs of cooling off in the Treasuries space.
Tisha Guerrero contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.