Warning – Check your 401K and IRA’s for Bonds and SELL them Quickly!

Many people own bonds today, why not there has been a 20+ year bull market for bonds. However, that is all about to come to an end pretty quickly. Bonds have been the backbone of fixed income investing for many years. Existing Bond holders are going to see the value of their investments drop substantially. You don’t think you own any Bonds, just check some of your mutual funds in your 401K and IRA and you might be surprised at how mucj you own.

When the Fed stops or “tapers’ its buying of assets, currently $85 billion per month, bond yields will go up and Bond prices will drop. If you still own Bonds, you’ll keep getting your dividend, however the value of the Bond or fund will fall. What good is an investment that pays a 3% dividend, but goes down 9% in price?

Here is what you need to know about Bonds:

1. When Bond prices go up, Bond yields go down. This is what has been happening as the Feds keep buying  Bonds.

Bond-1

2.  Normally the value of equities (stocks) are the opposite of Bond prices. This last year has however been an exception. Up until January 2013 the price of stocks and bonds often traveled in the same direction. But that has all changed now, see the chart below, it compares the price of the 20 year Bond fund (TLT) to the S&P 500.

Bond-2

Now is the time to get out of your existing Bonds. As Bond yields go up (and prices drop) you may want to get in at a later date.

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