Financial Advice for Retirement, Social Security, IRAs and Estate Planning

Why to Buy Stocks and Bonds at Peaks

June 16, 2017

This article takes a long-term perspective to demonstrate that someone who bought stocks and bonds near their peak prices for a cycle would still have very good returns over time. The problem with the analysis for many people in or near retirement is that it takes a 40-year perspective and is for someone who is still in the saving and accumulation phase of life.

Similarly, investors need not trouble themselves about buying bonds with rates so low.  While it is an iron rule of finance that when rates rise, the prices of existing bonds will fall, the math of rising rates actually works out in bondholders’ favor because the bond portfolio will generate higher cumulative returns as maturing bonds are reinvested at higher rates of interest.  This should be obvious since the vast majority of returns on bonds has, historically, come from interest received.

 

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