|But there’s actually a lot of good news. The economy is still growing, and even if there are some bumps in the road, corporate earnings have been strong and some investments are priced favorably, which means you may have some good buying opportunities.
So, instead of rushing into ultra-conservative investments, try to balance your portfolio between short-term vehicles, such as cash and certificates of deposit, with long-term investments, such as stocks and bonds. Your ideal balance should be based on your individual risk tolerance and time horizon.
It takes discipline and confidence to ignore the “bad news” of today and invest for tomorrow. But in the long run, it’s worth the effort.
Should You Worry About A “Bond Bubble”?
Bond prices have risen so much that there’s now talk of a possible “bubble,” which, if it burst, could drag down prices sharply. How can you protect yourself?
Consider these steps:
First, hold your bonds until maturity. No matter what happens to their market value, you’ll receive regular interest payments. And you’ll get your principal back when your bonds mature, unless the issuers default, which is unlikely if you purchase investment-grade bonds.
Also, consider building a ladder containing bonds of varying maturities.
When market interest rates rise, you can reinvest the proceeds of your maturing, short-term bonds into the new bonds being issued at the higher rates. And when market rates fall, you’ll still have the higher rates of your long-term bonds working for you.
Whether or not we see a bond bubble these moves can help you, so consider putting them in your overall bond strategy.
Contact Wendell at Edward Jones www.edwardjones.com.