As the markets reopened after a long weekend, it wasn’t a real surprise to see downward pressure especially with the headlines coming in from Libya and Egypt. I don’t think it wise to assume that Tuesday’s market decline was due to a fear of rising oil prices. Some of it may have been. But, it is reasonable to think that since the Dow Jones Industrial Average was approaching a 52-week high, it was time to take some profit off the table and rebalance. Or, how about using the gains to purchase investments in areas not presently owned?
What’s really interesting is watching the corresponding rise in U. S. Treasury Bond prices the same day. Safe haven? I don’t think so. Inflation may be something we need to contend with. If so, go for some growth on the equity side and stay diversified.
The February 28th, 2011 issue of Time magazine (pg. 19) has an artcile titled “Food Fights. Rising global grocery bills are hitting the poor and causing political unrest”. Please read this article. It is hard to argue against the math. It has me looking harder at using some of the profits from the well-diversified, equity portfolios I manage to invest in companies offering solutions to this economic fact-of-life. U.S. Treasuries are not on my list.
Now, don’t get me wrong. . .some concern is warranted but I question the decision to flee to a government bond. Safe havens can be many different things. Perhaps my profession should do a better job of educating investors to view risk from more than one angle. For example, if you believe that mankind is likely to strive relentlessly to eat and turn the lights on and that governments often do little to actually enable the efficient execution of this, look at other options.
Many people buy government bonds because they are viewed as liquid. Cash is liquid. If that’s what you want, keep some money in cash/currencies. We all shoud. Government bonds are not without risk. Nothing really is. Having emergency funds if you’re still working is imperative. Having a couple of years of retirement income readily accessible if you’re not is prudent. This gives us time to react to days in the market like this wisely.
It was a day or two to consider Profit Taking from a few to further diversify creating The Safe Haven.
Important disclosure: There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not ensure against market risk.
Until next week,
Susan R. Linkous
The Linkous Group, Ltd.