Investing With Clarity™ Blog

Are We Seeing the "Great Rotation?"

March 4, 2013 11:03:00 AM

The dumbest investment, in my view, is a long-term government bond. - Warren Buffett, March 4, 2013.

If you have followed my blog posts for a while, you will not be surprised to hear me say that at this time, I am not a huge fan of bonds today.

Why is this important to discuss now?

At this point, many are arguing that interest rates have probably bottomed out. Although there are no guarantees, the numbers dictate that they cannot go down much more than they are today!

AreHave interest rates bottomed out? Who knows!

But, I do know this; Many investors saw tremendous returns in bonds over the last 20 years as interest rates fell. Now that interest rates are at historical lows, interest rates really can't fall much more!

It is important for investors to understand that there are two ways in which investors make money in bonds: interest rate payments and capital appreciation.

The capital appreciation in a bond investment generally happens when interest rates fall. Conversely, as interest rates rise, there is the potential for a period of price depreciation of a bond, especially if the duration is longer term.

What is the Great Rotation?

The Great Rotation refers to the widely held prediction that because interest rates are so low, investors will move their investments out of bonds and into stocks.

Will investors move money out of bonds and into stocks?

Maybe. But, once again, while many try to predict what investors will do in the future, it is a lot like trying to predict what the stock market is going to do over short periods of time - we know that doesn't always work!

There is an ongoing debate as to whether or not we will see a great rotation out of fixed income and into equities.

This, is where Investing With Clarity becomes so important. Why? Because the more you understand about WHAT you own and WHY you own it, the more you will have Clarity to aid you in being a successful LONG-TERM investor!

Discussing your investment objectives and risk tolerance with your Financial Advisor is important. By doing so, you can develop a plan that will enable you to worry less about what the stock market and or the bond market are going to do over short periods of time.

Know what you own and why you own it! Invest with Clarity!


Mark Pearson

Mark Pearson

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