FYI: Investors have long taken comfort in the steady returns their bond funds have provided, particularly when stocks go on another of their gut-wrenching drops. But the safety blanket is getting more threadbare, a result of simple math. Bonds don't pay as much interest as they used to, following a decades-long drop in interest rates. That means bonds pay less in income and also raises the threat of a rise in interest rates. Higher rates mean prices for bonds, whether individual ones in your brokerage account or the ones in a bond fund you own, will fall because their payouts look less attractive than those of newly issued bonds.
Even though bond funds provide less cushion than before, they still are the best defense for a 401(k) account, fund managers say. Bond funds will still hold up better than stocks during downturns. And investors may be in need of some safety soon. U.S. stocks are more expensive relative to their earnings after more than tripling since early 2009, and Wall Street questions how much more they can rise without strong growth in profits. President Trump's promise to shake up the status quo could also mean big swings for stocks.
Regards,
Ted
http://bigstory.ap.org/article/f669cd236fa0432495631608bc0cde83/what-safe-part-your-401k-still-can-and-cant-do
Comments
Remember that we have a very different Fed Chairman today, Janet Yellen. My opinion is that I don't anticipate 6 rate hikes this year. Thus I will continue to keep moderate % to bond - intermediate and high quality. Also stable value fund is a better choice than money market if you have access to it.