Topic: How To Invest

What is Pat’s commentary for the week of March 3, 2020

Article Excerpt

Successful investors, like successful businesses, need to keep an open mind about the way they do things. Neither one can afford to keep doing something just because “we’ve always done it that way.” That applies to investing basics such as bonds. Many casual investors, financial journalists and brokers take it for granted that owning some bonds is a good thing. Mostly this is because they think bonds add stability to a portfolio. For brokers, however, “holding some bonds for stability” comes with a classic conflict of interest. Clients have to pay brokerage commissions every time they switch back and forth between stocks and bonds. Even if you pay a fixed or percentage-of-assets fee instead of a per-trade commission, your bond trades will add to the broker’s bond-trading opportunities. This can raise your broker’s income, but it’s likely to hurt your long-term investment results. Here’s the basic chain of assumptions behind this bonds-add-stability idea: When the business outlook becomes uncertain, stock prices go down;…

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