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Bond Bubble

posted Aug 10, 2010, 10:24 AM by Sam McPherson
A successful investor often needs to swim against the tide.  Right now, the tide is pulling investors to the perceived safety of bonds.  There is probably money still to be made as bond prices ratchet up and yields drift lower, but are bonds the right investment for long term investors?  When the bond market turns down, will the average investor be nimble enough to reduce bond holdings before losing more hard earned money?

Bonds are a core holding in any well diversified portfolio, but if your bond allocation has risen above your target allocation, perhaps it is time to consider selling some of your bond holdings.  If your equity allocation is underweight, then it may make sense to reinvest some of your bond gains in European equities.  The European equity market has been pushed lower by the recent sovereign debt crisis.  Since the European governments seem to be taking the right steps to resolve the crisis, there is an opportunity for long term investors to buy European equities at low valuations not seen since the 1980's.

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