In her latest market commentary, Charles Schwab’s Liz Ann Sonders says she doesn’t see a “bond bubble” forming — but she does say that many investors have probably moved too much of their portfolios out of stocks and into bonds.
Sonders notes that Treasury bonds actually outperformed stocks in the 20-year period that ended at the end of the first quarter of 2009, a very rare occurrence that has likely been a big part of why investors have flocked to bonds. “I often hear this as the basis for portfolios now heavily overweighted in bonds versus stocks,” Sonders says. But she adds that that’s no guarantee that the trend will continue. In fact, historically, when such lengthy periods of bond outperformance have occurred, stocks have gone on to produce much higher returns than bonds in the next five years, Sonders says. “Although investors didn’t lose money in bonds, they missed out on strong stock returns by bailing on stocks at the trough of relative performance (like in March 2009),” she says.
“Investors must heed the call of rebalancing and remember that diversification is important both among and within asset classes,” says Sonders. “We’re not bond bubble blowers, but no one ever went broke taking some profits.”
Continue reading ‘Sonders on the Bond “Bubble”, Hindenburg Omen’
