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The Risk of Safety

The Risk of Safety

Yet another article about the bubble in the bond market:

http://online.wsj.com/article/SB10001424127887323854904578261733526191140.html?mod=ITP_businessandfinance_5

Most investors today have never seen a bear market in bonds, interest rates have been steadily decreasing since the early 80’s so investors have come to look at bonds as “safe” and stocks as “risky”.  True safety is being in harmony with market trends, in stocks and bonds, investing in an asset class when the rewards outweigh the risks and not investing in it when the risks outweigh the rewards.  With interest rates so low at best you are looking at earning just the coupon on bonds, at worst you are looking at capital losses when interest rates increase.   Not much reward there and a lot of risk, that is not my definition of “safety”.

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