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I Know Interest Rates are Low – But…

October 02, 2019

It is not unheard of to hear people say, don’t invest in bonds, the interest rates are low. It is hard to argue that interest rates are way below their historical averages. You may also hear bonds are expensive.

By most calculations, so are stocks. What to do? Some people bring up buying real estate but such investments have their own special risks, especially lack of liquidity. You can’t sell the kitchen off to buy groceries or buy a new car. Cash isn’t really an alternative, you earn

Should you hold it in cash? Cash pays less than bonds and you may lose more to inflation.

The reality is stocks and bonds together offer diversification whether they are expensive or not. While occasionally they move in sync, most of the time stocks and bonds behave differently. When one goes up, the other goes down.

Furthermore, depending upon the type and duration of the bond, it will lose less than stocks.

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