Skip to main content

Warren Buffett and the Bond Market


On, Monday, May 6th, during an interview on CNBC, Warren Buffett, the venerated Chairman of Berkshire Hathaway and famous investor, called the fixed income or bond asset class a "…terrible investment right now".  Obviously, it is important to listen closely to what Mr. Buffett has to say given his investment track record.  However, it is also important to take several other factors into consideration as well, such as:

1.) Mr. Buffett is in a different financial position than probably 99% of us and, therefore, can afford to take a different amount of risk.  This is also likely true for most of the people who earn a living by making financial predictions.

2.) As The Wall Street Journal wrote on Sunday, bond bears were making the same calls in the beginning of 2010, 2011, and 2012; those predictions led to lower yields (e.g., higher bond prices and thus higher bond returns) as the year went on.  If the keep predicting this every year I guess eventually they will get it right.

3.) While bonds may be a "terrible investment right now,” according to Mr. Buffett, that shouldn't mean that if you currently own bonds you should get rid of them at this time because, when the stock market pulls back, and it will, you will be glad you owned bonds.

4.) A "terrible" market for bonds is much better than a "terrible" market for stocks.  One of the worst bond markets occurred in 1994 when the Federal Reserve raised the funds rate from 3.00% in January 1994 to 6.00% in 1995 in quarter percentage rate increments and the bond "market" as measured by the Barclays Aggregate index lost 2.9% where the stock market, as measured by the S&P500, gained 1% in 1994 but lost 9% in 2000, 12% in 2001, 22% in 2002 and 37% in 2008  (Sources:  http://www.bonddeskgroup.com/main/market-data/historical-returns/bond-vs-equity-returns , http://www.ritholtz.com/blog/2011/04/is-it-1994-again/ )

5.) All of Mr. Buffett's investments and predictions, as well as those of most financial market predictors, have not always been correct or made money.  In 2009 his company lost 62% due to their investment portfolio (Source: http://www.cbsnews.com/2100-500395_162-4835570.html )

6.) In our opinion instead of trying to guess what the financial markets are going to do, which we cannot control, it is more important to look at your investment portfolio with respect to your goals and the amount of risk you are willing to take and to not to have all your "eggs" in too few baskets.  This is what we help our clients do.




*Please note that it is not possible to invest directly into an index.

Comments

Post a Comment

Popular posts from this blog

COVID will not stop us providing unique settlement solutions using structured settlement annuities!

I hope that you are doing well! We just FINALLY completed the settlement of a case for a minor (age 17) that we were initially engaged by our plaintiff attorney client in February 2021, to provide structured settlement annuity quotes! Although the claimant was very close to the age of majority the key to the case was not giving him all of the settlement proceeds, which was over $120,000, at age 18. Having been in this business for over 20 years I cannot tell you the number of sad cases we have witnessed where the young claimant receives their settlement proceeds at age 18 only to blow through all the funds before anyone can blink and make bad decisions with the proceeds! This case involved two liability insurance carriers Liberty Mutual and Member Select. We coordinated multiple rounds of document revisions and had to have a separate set of different documents for each insurance carrier. In addition, one of the carriers would not fund the annuity until we had a fully executed court ord
Post a Comment
Read more

Using a structured settlement annuity pre-suit

 We recently were engaged by the Guardian Ad Litem (GAL) in the case of an 11 year old boy who was struck by a care while riding his bike.  The father of the boy settled the case directly with the liability auto insurance carrier pre-suit and the GAL contacted us to ensure that the boy's settlement funds were handled appropriately. The case settled for a total of $65,000 and $59,000 was being allocated to the structured settlement annuity for the boy as follows: $5,000 paid immediately upon settlement $10,000 at age 18 $20,000 at age 21 $25,000 at age 25 $35,718 at age 30 this is total benefits of $95,718! The annuity was placed with a large life insurance company rated A+ by the A.M. Best rating agency and provided the family and GAL with the peace of mind that the young man would not receive the entire amount at age 18. In addition, due to the use of the structured settlement annuity, all of the interest gained during the payout period ($31,718 to be exact) is INCOME TAX FREE!  T
Post a Comment
Read more

9/17/2023 Weekly Market Performance

  Here is our research department's Weekly Market Performance analysis.  If you have questions or need anything else please contact me at (734) 272-4322 or cyril.white@fourfinancial.com  U.S. and International Equities Markets Mixed The major markets ended mixed this week as the utilities and consumer discretionary sectors led while information technology lagged following Apple’s challenges in China.  Developed international equities posted solid gains this week as European stocks have witnessed their largest gain in six months after the European Central Bank (ECB) signaled an end to its hawkish monetary policy. Next Wednesday, the Federal Reserve meets concerning monetary policy and interest rates.  We believe the Federal Reserve should highlight underlying improvements within the inflation dynamic. In addition, we believe the Fed will not likely declare victory but will probably highlight the risks to growth and inflation are getting into balance. According to the AAII Sentiment
Post a Comment
Read more