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Imperfect bonds?

June 11, 2012

It’s a widely accepted part of Investing 101 that bonds are a safer, less volatile and more stable investment than stocks and other, riskier financial instruments. That is part of the reason why so many people have flocked to bonds for security during the last few years—a period of economic turbulence making anything that seemed like a safer bet more appealing. Ironically, the prospects for an economic recovery might mean that those investors who turned to bonds for more security might find themselves in a somewhat exposed position right now. No less an authority than Warren Buffet has been quoted as saying that “Bonds should come with a warning label”. The reality is that the bond market may shift when interest rates rise. And, as our economy improves, inflation worries may prompt the introduction of new, higher-interest bonds, resulting in a sell-off of existing bonds. The resulting price drop could very well mean that many investors will be left holding bonds with lower interest rates than won’t have much value. While now might not be a great time to invest in bonds, there are plenty of other viable options out there. Annuities are one such option and are really starting to come back into fashion as an increasingly popular choice for seniors. With many pensions looking shaky and worries about the long-term viability/sustainability of social security, the dangers in the seemingly safe bond market have made alternatives such as annuities look better and better as a steady and reliable source of income.

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This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. Please consult with a professional specializing in these areas regarding the applicability of this information to your situation.

Andrew Wood, Dan Simon and Alison Slezak are Investment Advisor Representatives. Advisory services are offered through CoreCap Advisors, LLC., a Registered Investment Advisor. CoreCap Advisors, LLC and Daniel A. White & Associates, LLC are separate & unaffiliated entities. 

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