Dear John: I have my 401(k) retirement fund heavily weighted towards bond funds, but am now worried since May had very poor bond-market returns. [But] I feel the stock market is overvalued now, too. Steve.
Dear Steve: The bond market, of course, has been in a tremendous, decades-long bull market. Put another way, that means interest rates are at their lowest level in more than a generation.
The price of bonds, as you probably know, move in the opposite direction of interest rates. With rates as low as they are, there’s little room for more bond-price appreciation.
So, are you willing to stay in bonds despite the limited upside potential, even though a rise in rates could be the start of something big on the downside? You have to answer that yourself.
Stocks are really an afterthought. Stock prices in the US are up a lot this year because the Fed is printing so much money and investors are looking for a place to park this money. Stocks are rising for the same reason real estate is going up, and fine art and antiques: People need to do something with their dough.
If there’s a sudden jump in interest rates (and a decline in bond prices), stocks are also bound to go lower.
Send your questions to Dear John, The NY Post, 1211 Ave. of the Americas, NY, NY 10036, or john.crudele@nypost.com.