By Daniel A. Barnes

Bond Intelligence

The economy is likely headed for tough sledding. Stocks haven’t been saying so, but given the jobs situation (there aren’t many), it’s not a good outlook. Bonds are confirming this. Bonds often perform well during a recession because other investments become less profitable, thereby increasing demand for bonds.

Since the alleged recovery began, bond yields have fallen. In a true recovery, they are supposed to rise. Treasury investors are willing to accept a 3.2% annual return for a government bond for the next ten years; twelve months ago, they would accept only a 4% interest rate. This signals to me that the recession will go on much longer than the stock market has been predicting. In the tug of war between stocks and bonds, as smart as the “stock market” is, the “bond market” is the smarter of the two.

Blocking and Tackling

The Bond Market’s signaling a long road ahead for the elusive economic recovery. Most assets seem to be at either fair or full value. Bonds which sold at very compelling prices earlier this year have since gained ten, twenty, even thirty percent. But now, value is conspicuously absent among most asset classes.

In this value void, I recommend you go back to the fundamentals, investment blocking and tackling. Have you recently check your diversification?

In the journey to achieving your life goals, diversification is the only “free lunch.” While it is unclear how creating two trillion dollars of new currency each year will affect the economy, stocks, bonds, gold, oil, or other currencies. And while we can know these outcomes in advance, we can rely on investing fundamentals to navigate these rocky shoals in dense fog. In the land of the blind the one-eyed man is King and true diversification is the optic which illuminates.

Diversification

If your portfolio is missing stocks, bonds, gold, oil, or cash, it may be poorly positioned to capture the upside and avoid the downside of whatever the next few years bring.

Not all diversification strategies are created equally. Your advisor may say you are diversified; to him, you are. Your advisor’s understanding of what constitutes diversification, however, may be antiquated. Maybe he or she works for a big brokerage firm or bank and simply passes on conventional ideas born of the bull market of 1982-2007.

I encourage you to review your current strategy. A lot has changed in the last few years, and I garner many people are not well-positioned to navigate and thrive on the tricky road which lies ahead.

“Second Look” Service

If you are not sure about what your strategy is, and whether it is appropriate for your unique situation today, you may want to consider a second look. I offer a “Second Look” service. This is a complimentary review of your existing portfolio allocation with no cost, obligation or pressure. If you are concerned about your making the best choices to achieve your life goals in a safe way, call me at 925-284-3503 to schedule a 30-minute “Second-Look” review meeting.

Barnes Capital is a Registered Investment Advisor located at in downtown Lafayette. With RB Capital Management, Barnes Capital develops custom tailored portfolios for its clients. Specialized in retirement income portfolios, financial planning in an integral part of our process. Call 925-284-3503.

This entry was posted on Thursday, October 1st, 2009 at 8:25 pm and is filed under Monthly Column. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.