This text refers to question.
Taking a Cue From Bernanke a Little Too Far
Financial advisers have been fielding calls from shaken investors in recent weeks, particularly retirees, who are nervous that a bond market crash is on the horizon.
You can hardly blame them. Investors have been fleeing bonds in droves; a record $ 76.5 billion poured out of bond funds and exchange-traded funds since June. That exceeds the previous record, according to TrimTabs, when $ 41.8 billion streamed out of the funds in October 2008 and the financial crisis was in full force.
But the rush for the exits really means one thing: investors are betting that interest rates are about to begin their upward trajectory, something that’s been expected for several years now.
Their cue came from the Federal Reserve chairman, Ben Bernanke, who recently suggested that the economic recovery might allow the central bank to ease its efforts to stimulate the economy. That includes scaling back its bondbuying program beginning later this year.
So the big fear is that interest rates are poised to rise much further, driving down bond prices; the two move in opposite directions.
A Barclays index tracking a broad swath of investment-grade bonds lost 3.77 percent from the beginning of May through Thursday, according to Morningstar. United States government notes with maturities of 10 years or longer, however, lost an average of 10.8 percent over the same period.
Making a bet on interest rates is no different from trying to predict the next big drop in stocks, or jumping into the market when it appears to be poised to surge higher. These sort of emotional moves are exactly why research shows that investors’ returns tend to trail the broader market.
And it’s also why many financial advisers suggest ignoring the noise, as long as you have a smart assortment of bond funds that will provide stability when stocks inevitably tumble once again.
“It’s a futile game to base portfolio moves on interest rate guesses,” said Milo Benningfield, a financial adviser in San Francisco. “We don’t have to look any further than highly regarded Pimco manager Bill Gross, whose horrible interest rate bet against Treasuries in 2011 landed him in the bottom 15 percent of fund managers in his category that year. Investors should take a strategic approach designed around the reason they hold bonds — and then sit tight whenever hedge funds and other institutions shake the ground around them.”
The main reason longer-term investors hold bonds, of course, is to provide a steadying force. And though today’s lower yields provide less of a cushion — the 10-year Treasury is yielding about 2.5 percent — bonds still remain the best, if imperfect, foil to stocks.
“The role of bonds in a portfolio has always been to be a ballast or a diversifier to equity risk,” said Francis Kinniry, a principal in the Vanguard Investment Strategy Group. “And that is very true today. Yields are low, but this is what a bear market in bonds looks like.”
You can hardly blame them. Investors have been fleeing bonds in droves; a record $ 76.5 billion poured out of bond funds and exchange-traded funds since June. That exceeds the previous record, according to TrimTabs, when $ 41.8 billion streamed out of the funds in October 2008 and the financial crisis was in full force.
But the rush for the exits really means one thing: investors are betting that interest rates are about to begin their upward trajectory, something that’s been expected for several years now.
Their cue came from the Federal Reserve chairman, Ben Bernanke, who recently suggested that the economic recovery might allow the central bank to ease its efforts to stimulate the economy. That includes scaling back its bondbuying program beginning later this year.
So the big fear is that interest rates are poised to rise much further, driving down bond prices; the two move in opposite directions.
A Barclays index tracking a broad swath of investment-grade bonds lost 3.77 percent from the beginning of May through Thursday, according to Morningstar. United States government notes with maturities of 10 years or longer, however, lost an average of 10.8 percent over the same period.
Making a bet on interest rates is no different from trying to predict the next big drop in stocks, or jumping into the market when it appears to be poised to surge higher. These sort of emotional moves are exactly why research shows that investors’ returns tend to trail the broader market.
And it’s also why many financial advisers suggest ignoring the noise, as long as you have a smart assortment of bond funds that will provide stability when stocks inevitably tumble once again.
“It’s a futile game to base portfolio moves on interest rate guesses,” said Milo Benningfield, a financial adviser in San Francisco. “We don’t have to look any further than highly regarded Pimco manager Bill Gross, whose horrible interest rate bet against Treasuries in 2011 landed him in the bottom 15 percent of fund managers in his category that year. Investors should take a strategic approach designed around the reason they hold bonds — and then sit tight whenever hedge funds and other institutions shake the ground around them.”
The main reason longer-term investors hold bonds, of course, is to provide a steadying force. And though today’s lower yields provide less of a cushion — the 10-year Treasury is yielding about 2.5 percent — bonds still remain the best, if imperfect, foil to stocks.
“The role of bonds in a portfolio has always been to be a ballast or a diversifier to equity risk,” said Francis Kinniry, a principal in the Vanguard Investment Strategy Group. “And that is very true today. Yields are low, but this is what a bear market in bonds looks like.”
Internet: <www.nytimes.com> (adapted).
According to the text, judge if the following item are right (C) or wrong (E).
In general, bonds provide stability to an investor’s portfolio.
In general, bonds provide stability to an investor’s portfolio.
