6/10/13 4:00 PM – Time to Sell Bonds & Related Advice

I have written on my blog for some time now that I think the 31-year bull market in bonds is over and that fixed income will be an asset class with poor prospects and a good bit of risk over the next few years. Rates are now set to rise from the extraordinarily low levels they are at today back to more normal levels several percent higher. How quickly that will happen, I cannot say.

I cannot call the best day to sell bonds or successfully time the back and forth actions of bonds over the next few months. No one really can. My job is to get the big picture right. That big picture is that overall, bonds are likely to be a lousy investment as rates rise. There is a strong chance of losing money in bond funds of all kinds. Only if you have an individual bond with a near-term, set maturity date when you will be guaranteed that the bond will pay off at its face value should you hold bonds.

There are exceptions to this, one of which is floating rate bond funds which are generally tied to packages of bank loans. Franklin Floating Rate Fund is an example and I have moved some of our bond fund money into that fund. I have also moved some money into the Osterweis Strategic Income Fund. Unlike many bond funds, these two funds still have positive returns for 2013 and have dropped very little in the selloff over the past three weeks.

All our other bond funds I sold today. I will continue to research bond funds and see if we can come up with others that I feel comfortable with.

If you have not refinanced your mortgage you need to run down and get it done ASAP, unless your rate is low enough already that you would not gain much after the costs of refinancing, or you have a short time left before your home is paid off.

If you have an adjustable rate mortgage or an interest only mortgage, please get these converted to a normal fixed rate mortgage. I usually recommend a mortgage length of 15 years.

If you have CDs, please do not renew them for anything longer than a couple years because you should find higher rates before long.

Please let me know if you have any questions.