Bond Strategies for Those Fearful of Inflation
by Stan Richelson and Hildy Richelson
The media warns investors not to buy bonds because inflation is coming, interest rates will rise and the value of bonds will fall.
The brokerage houses “mark to market” your bond portfolio every day, creating an awareness of portfolio valuation in the hopes that you will trade to take gains and sell losses. Depending upon a number of factors, including the frequency with which a particular bond has recently traded, these valuations may be more or less accurate.
In the trading process, you incur substantial costs and the brokers make money. You may or may not make any money. In fact, there have been numerous studies showing that if you trade, you lose money. Daniel Kahneman, the 2002 winner of the Nobel Prize for economics, states in his book “Thinking, Fast and Slow” (Farrar, Straus and Giroux, 2011) that “Many individual investors lose consistently by trading, an achievement that a dart-throwing chimp could not match.”
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Hildy Richelson is president of Scarsdale Investment Group, a registered investment adviser based in Blue Bell, Pennsylvania, that specializes in fixed-income investments. Hildy and Stan Richelson are co-authors of several books on bonds, including “Bonds: The Unbeaten Path to Secure Investment Growth,” Second Edition (Bloomberg Press, 2011).