Tags: bond | fixed income | investors | stocks

Bond Market Exodus Will Prove to Be a Myth

By    |   Friday, 15 Nov 2013 07:12 AM

Many analysts are arguing stocks are set to benefit from a generational shift out of bonds, as retirees seek higher income. This would boost stock prices, but Federal Reserve data show individual investors have very little invested in bonds. There is not enough available in fixed-income investments to cause a significant gain in the stock market.

The Fed provides a quarterly look into household wealth. According to the data, wealth has been growing steadily since 2008, as the value of stocks soared and real estate recovered slightly.

Data on wealth show that households hold a relatively small amount of fixed-income investments — only about 6.5 percent. The total amount allocated to fixed-income investments has actually declined since 2008.

Bonds are widely believed to be an integral part of a balanced portfolio. Standard financial planning advice is to increase the amount of bonds held with age. Investors seem to be holding their income allocations steady instead of following standard advice.

If rates rise, investors may shift money from bonds to stocks, but there is not enough capital in the bond market to fuel a bull market in stocks.

Bonds seem to be held by pension funds and insurers that can match assets to liabilities. They are able to do this because the life expectancy of large groups is fairly predictable and bonds are the perfect investment for predictable cash flow needs. Individuals cannot do this because no one person knows how long they will live and bonds with low yields are a bad investment for most people.

Individual investors understand bonds are a poor investment choice and they hold only a small amount. There are not trillions of dollars sitting in bonds ready to move to stocks, and if the Fed changes course, stocks are likely to fall.

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MichaelCarr
Many analysts are arguing stocks are set to benefit from a generational shift out of bonds, as retirees seek higher income. This would boost stock prices, but Federal Reserve data show individual investors have very little invested in bonds.
bond,fixed income,investors,stocks
296
2013-12-15
Friday, 15 Nov 2013 07:12 AM
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