I’ve been hearing, and reading a lot, and I mean a lot, about the bond bubble. But you know what? I’m not concerned in the least. I’ll tell you why.
Yes, I know the Fed is talking about raising rates this year. But you and I know the economic reports they gloss over, and wax and wane about, have zero to do with the economy you and I deal with—the one we live and breathe everyday— you know, the real world.
And yes, I know how bonds work: when interest rates go up, prices go down. I get it.
But the Fed has almost no control over interest rates that you and I care about. They control the once important but no longer relevant Fed Funds rate. Don’t tell them I said that. But it’s true. To you and me, the real people, the successful who have saved money over years and years and years of sacrifice, the Fed Funds rate is irrelevant.
Why? Because the bonds you and I invest in are not overnight lending contracts with banks. They’re retail debt. Stuff that mom and pop have access to. And the fate of the bonds we invest in will not be determined by the Fed. The bonds I care about are not on the Fed’s radar. The bond prices I care about will be determined by the market just as stock prices are determined by the market not the high priests of the Federal Reserve.
Sell bonds? Forget about it. I love Bonds and bond funds. My favored Vanguard Short-Term Investment Grade may decline, temporarily, when the Fed raises rates (like a 0.25 move really matters). But I’m not selling.
When was the last time investors made money in stocks during a complete trashing of the market like the one we had in 2008? Talk about a bubble.
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