What Happens If Bonds Tank? - Real Time Insight
Zacks Investment Research | March 21, 2012

Do you own bond funds?

Many people do, either in a 401k "target date" fund or in funds throught their IRA/pension plan.

Due to a multi-decade bull market and outperformance in 2008 when stocks were getting crushed, bonds are now considered "safe" investments by most investors. They only go one way: up.

So investors continue to pour money into them.

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According to the Investment Company Institute, which keeps track of mutual fund data, for the week ending March 7, inflows into bond mutual funds soared to $10.7 billion from $6.6 billion the week before. This was the highest weekly inflow level since the darker times, in October 2009, when weekly inflows were $11.3 billion.

At the same time, investors pulled money out of domestic equity funds, redeeming $1.4 billion even as stocks continued to hit new multi-year highs.

Yet most bond funds have underperformed the S&P 500 over recent months.

Go figure.

It doesn't make any sense to be buying bonds right now.

Do investors even know what kind of return their bonds are giving them?

What happens when they realize that they may actually lose money investing in bonds?

I don't own any bond funds. I'm a pure stock investor through and through. I can't help it. I like the excitement of actually owning companies (especially if they pay me a dividend.)

But if you DO own bonds (as many people do), what's your plan if bonds tank?


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