Monday, August 08, 2011

Not Time to Panic

I probably should start a new blog on investing, but in the meantime I feel compelled to say that today's big market sell-off in New York and elsewhere is not a signal to panic. Yes, the markets are under heavy pressure because of the downgrade of U.S. government debt by Standard & Poor's, European debt woes and other concerns.
It may take a while for stocks to rebound, but those who sell during a panic like the present one usually live to regret it. The only individual investors who should be selling stocks now are those who may need the money they have in stocks in the next few months. (And in that case, the money should not have been in stocks in the first place.)
However, bond investors with positions in long bonds might consider selling in the near future. While stocks were down sharply today, bonds including U.S. treasuries were up. At some point, probably fairly soon, interest rates will start to rise and that will lead to a sell-off in bonds, especially those at the long end of the yield curve, 10 year or more.
It's hard to give up the income bonds provide, but the premiums that long bonds have acquired won't last forever. Better to bite the bullet now than wish you had sold them at some point down the road, when the premium has vanished.

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