Monday, May 6, 2013

More on Bonds ... Buffett Says Stay Away

I've recommended that individual investors stay away from owning bonds.

Both low interest rates and the possibility of a loss of principal when rates rise are two powerful reasons to avoid bond ownership.

Another is that the purchasing power of bonds won't keep pace with inflation over time, and yet another is the sheer 'silliness' of an ill advised individual asset allocation strategy.

Here's what Buffett on CNBC warns of looming bond losses has to say today:

"Bonds are "a terrible investment" right now, Berkshire Hathaway Chairman and Chief Executive Warren Buffett told CNBC Monday.

He recommended holding a comfortable amount of cash but otherwise investing in "productive assets", and called having a set asset-allocation strategy "silly."

Bond prices are artificial right now given the Federal Reserve's purchases of $85 billion a month, "and when that changes, people could lose a lot of money." "

Summing Up

As Buffett says, a "zero bonds" approach for individual investors today makes the most sense.

Use blue chip dividend payers as a substitute for bonds, or just go with a low cost passive S&P 500 index fund accompanied by a comfortable cash equivalent allocation for the remainder.

That's my take and now we know it's Buffett's take as well.

Thanks. Bob.

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