Bonds — a safe haven? NO! Says Terry
Are bonds a safe haven in a falling stock market and during a possible recession
Terry Says
Oh no! Read this article, Beware of Bonds, published less than a month ago in my syndicated column and on my website.
In a recession — which is coming — some companies (think oil companies, retailers, airlines) might not be able to pay the interest on their bonds. Or they will be downgraded by the rating agencies as they come close to not paying.
In this column, I noted that a larger than ever percentage of corporate bonds inside bond funds are rated BBB — the lowest investment-grade rating. If they are downgraded, the funds will be forced to sell the bonds at a loss. That will cause the price of your bond fund to decline.
Why are those close-to-the-edge bonds inside your bond fund? They pay a slightly higher rate of interest — and that made the fund yield attractive to buyers. Now some will pay the price.
The ONLY safe haven is a money market deposit account in a bank, or a money market mutual fund that buys only U.S. government securities. There is one of those at every major mutual fund company — Fidelity, Vanguard, T. Rowe Price.
No, you won’t earn anything on those government-only money market funds. But you won’t LOSE ANYTHING!!
Remember the mantra of the “chicken money investor”: I’m not so concerned about the return ON my money, as I am about the return OF my money!!
