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Showing posts from June, 2013

Rising Rates and Their Impact on "Safe Assets"

Jason Zweig of the Wall Street Journal wrote an article an interesting article observing in part what happened to certain asset classes investors typically deem safe during the rising interest rates of 1994. During this year the FED raised rates 5 times. He wrote:

"The biggest fear of investors then was that the Fed would tank the markets, which still were recovering from the recession of 1990-91. That didn't quite happen; the U.S. stock market overall earned 1.3% for the full year in 1994.

But the damage was widespread, hitting supposedly safe and risky assets alike. For the full year, utility stocks lost 15.3%; municipal bonds, 5.2%; emerging markets, 8.7%; intermediate-term Treasurys, 5.7%; the U.S. bond market as a whole, 2.9%; gold, 2.2%. REITs eked out a gain of 0.8%; without their generous dividend yield of roughly 7%, they would have lost 6.4%. (The average yield on REITs today is a bit over 3%.)"

Most investors don't think that their bond funds can lose…