One of the nice parts about writing this blog is I have met some folks who know a great deal more about Investing and Investment vehicles, and one of those is our friend Preet Banerjee. I met Preet through the Canadian Capitalist (for those who don’t know the story look at the N.C.F.B.A. links on my sidebar most of these members have dinner and discuss things every few months), and he has been kind enough to explain a great many things to me about investing and such.
The last time we met, I asked Preet if he might be doing a post on Bonds and how many folks think they are a “safe” investment and he promised me one was in the works and here it is: The ‘safe’ part of your portfolio could get you in trouble. If you have not read this article in the Globe, please go do so, especially if you are or are thinking of investing in Bonds and you are not advanced in the nature of Bonds.
This is not talking about the CSBs (Canada Savings Bonds) you grew up with, these are the Bonds that are in Bond Mutual Funds, or Bond ETFs, we are sort of in a perfect storm for these vehicles to lose their investors money (when in fact the investors think they are in a very safe place).
Interest rates are so darn low, that any small change (like a 1% change), can cause these funds to lose money. I won’t go into details, because I don’t think I am sophisticated enough to do the topic justice, but just understand that if you think your money is “safe” in a bond fund, you need to think again.
If you want safe and boring growth, GICs or CSBs are the choice of boring, milk toast, don’t want ulcers (or growth) investors, stick with those for now, if you want safe (and incredibly slow) growth.
If you want safety, make sure you know that it is safe.