Bond Market, was told to get out now!

[Anonymous]

I have been in bonds for the last 5 years and a friend of mine told me to get out now especially virginia bonds.

Is there something coming? I though the interest rates would stay low for a while and that in general even if they rise bonds are stable.

[Anonymous]

Did you ask your friend why? I tend to agree, but one needs to understand why and not react to race track tips on which horse will "show" in the seventh.

[Anonymous]

Stockton, California just filed for bankruptcy and its bond holders are taking the city to court.

Long piece on the radio yesterday with commentary about the implications of municipal bond defaults on investment portfolios. Unless your friend has a different reason, my guess is that it's a reaction to this news.

[Anonymous]

But what's wrong with Virginia bonds?

In general, bonds don't do as well in times of inflation - their returns are lower than the rate of inflation. However, if you hold the bonds themselves, they do continue to pay the coupon, and will be redeemable (so long as they are not called).

Bond funds seem to work a bit differently, as they are valued more on NAV and values go down. I still haven't fully figured the bond funds out yet.

I still recommend a balanced portfolio, with some stocks and some bonds and some cash and some real estate and some of what ever else you like.

[Anonymous]

I have done bonds and stocks, bonds has always given me better returns

[Anonymous]

interest rates have also been in a long term secular decline, something that won't happen forever.

Over the medium to long term, bonds will be a tough play, if only because interest rates are so low and can't go much lower. Since bond prices and interest rates are inversely related, this is bad news for bond holders. BUT - current interest rates could stay low for a long time. The Fed promises no action until 2015, but if the economy remains poor this could be put off for many years.

So your friend is in some ways right. Their prices will have to go down at some point in the future - the problem is that no one knows whether that point is within the next few years, or within the next decade or two.

[Anonymous]

Do not panic, research the market and make an informed decision. Talk to your financial planner or advisor, and perhaps diversify.