Handling a Bond Portfolio when Rates are Low and Corona Still Lurks

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Doug Goldstein June 11, 2020

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Corona is casting a giant shadow over all aspects of life.

Even though the market may have begun to recover from its initial crash, nothing is smooth sailing.

If you are too nervous to invest in the stock market now, bonds may look more enticing. 

While an expanded bond portfolio may lower your exposure to stock market risk, it may be difficult to invest in bonds when rates are low.

Why interest rates are low

The U.S. Fed set interest rates to about zero. If the interest rates on bonds is low, the government can borrow more money without paying so much interest. This way Uncle Sam can borrow enough money to pay out the money it promised in the economic stimulus package to its citizens.

Far-sighted companies may also borrow money at low rates, looking to fund future projects with what can seem like “free money.”

How can the government get rid of its debt?

  1. Print more money – the more money in circulation means inflation, and each dollar is worth less – this causes the potential for inflation
  2. Increase taxes
  3. Cut spending

What are some good specific fixed-income strategies?

Even with low interest rates, there are reasons to invest in bonds and other fixed-income investments. Listen for an explanation of specific strategies using bonds for diversification and corporate bonds.

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