Net Worth Advisory Group of Salt Lake City, Utah, Addresses the Possibility of Bond Bubble

Feb. 7, 2011 - PRLog -- Lately, many clients have express worries that the bond market will continue to decline in value. Consequently, individuals have wondered whether they should sell their bond positions.

When addressing these concerns, it is important to note that a fee only financial planner's goal is not to predict what the markets will do, but to prepare an investment portfolio for long-term growth regardless of short-term market trends. Additionally, it is interesting to point out that we have seen turbulence in the bond markets before, and over the long-term people have been better off maintaining their asset allocation in good times and bad.

In fact, over the last 85 years long-term government bonds have actually decreased in value during 21 calendar years. By comparison, large cap U.S. stocks have decreased in value only 24 times during the same time period, and 7 of those declines occurred during the Great Depression. When considering this, one could argue that bonds and equities are essentially equally likely to suffer a short-term decline. Of course, the difference is the degree of the losses suffered. Large cap stocks worst single-year decline was -43.34% (1931), while bonds largest decline during an individual year was -12.19% (2009).

Clearly, we've seen bonds decrease in value before but level heads still consider them an essential element of an investment account. Why? The answer involves diversification. Of the 21 years since 1926 that bonds suffered losses, only in 5 years did stocks also decline in value. As a result, only in 6 of the 21 years when bonds suffered loses was a portfolio that was 50% stocks and 50% bonds worth less at the end of the year. In fact, in 2009, when bonds suffered their largest loss on record (-12.19%), large cap stocks increased in value by 26.46%. Thus, a 50/50 portfolio actually increased in value by 7.14% that year.

The bottom line is that we've seen bonds suffer setbacks before, but very rarely has turbulence in the bond markets lead to significant declines in diversified portfolios. However, having bonds in your asset mix has constantly reduced volatility during rough times in the equity markets. This trade-off of simply too attractive to pass up.

For more information, visit http://www.utahfinancialadvisor.blogspot.com.

About Mr. Jefferies

Lon Jefferies is an investment advisor representative with Net Worth Advisory Group, a fee-only financial planning firm in Salt Lake City, Utah. He is a member of the National Association of Personal Financial Advisors (NAPFA) and a candidate for CFP™ certification. He possesses an MBA and bachelor's degrees in Finance and Marketing from the University of Utah. Lon writes articles for local magazines such as Business Connect and Utah Business Magazine, and he consistently contributes articles to online magazines such as FIGuide.com and FILife.com (by The Wall Street Journal). Additionally, Lon is a platinum expert author at EzineArticles.com. Lon has been quoted nationally in publications such as the Wall Street Journal, the NY Times and Investment News.

Contact Info

View Lon's blog at http://www.utahfinancialadvisor.blogspot.com, and visit Net Worth Advisory Group's home page at http://networthadvice.com. Lon can be emailed at lon@networthadvice.com, or phoned at (801) 566-0740.

# # #

Fee-Only Financial Planner
Net Worth Advisory Group
6975 Union Park Center, Suite 465
Midvale, UT 84047