Stocks and Bonds in the New Year

As we start a new year, the universal view of market pundits is that bonds suck wind and stocks look okay.  This alone should make equity investors nervous and give some comfort to bondholders.  But expectations are modest:  the S&P 500 closed 2013 at 1848 and 2014 year-end targets from various investment banks range from 1850 to 2000, corresponding with returns of 0% to 8%. As we know from (sometimes bitter) experience–and extensive research–such predictions aren’t worth the paper they’re printed on, but can we say anything useful about risk? According to Sentiment Trader, which monitors investor sentiment, several stock […]

What happens when the Fed tightens?

When the dust has settled from the budget and debt ceiling debacles, we’ll still be faced with the question of how the Fed is going to extricate itself from quantitative easing without inducing panic in financial markets. I suspect we’ll have some time to ponder this question, because the Fed was clearly spooked by the markets’ reaction to chairman Bernanke’s comment in May that it might start “tapering” its $85 billion-a-month bond purchases as soon as September.  Just the suggestion that it might begin to pull back caused rates to rise sharply, effectively tightening monetary policy overnight. But this experiment […]

Staying the Course: Risk Allocation

In his many wise books and articles, Jack Bogle, the founder of Vanguard and scourge of active managers, constantly urges investors to “stay the course!” That is, stick with their investment plan, ignoring the daily hum and buzz of fluctuating markets. But what do you need to do to stay the course? First, as long as your investment plan has been designed properly (on how to write an investment plan see and your personal financial circumstances haven’t changed, the first step in staying the course is rebalancing. That is, as the different investments in your portfolio rise or fall […]