Making Money Alert
Bear Market Survival Guide, Part V
11/16/2011
This week is the final installment in our Bear Market Survival Guide series. I think it’s important for investors to keep in mind that even if we don’t see stocks morph into a full-blown bear at this juncture, the threat of a protracted downturn in the equities is omnipresent.
In fact, given just how volatile stocks have become during the past couple of years, it always behooves you to be prepared for a significant and very rapid downturn. The reason being prepared for the inevitable decline in stocks is so important is because it is very hard to climb out of the hole when investing. You can do everything right during bull markets, but if you fail to look after your capital in bear markets, all of those bull market moves will be for naught.
Earlier in this series, we talked about the importance of recognizing when you’re in, or getting close to, a bear market. We looked at this situation from both a technical and fundamental viewpoint. We also talked about how to use bear-market equity funds that are designed to move higher when stocks are in decline. Then we covered currency funds, which also are used by investors as safe-haven investments when stocks are in decline. This week, we’ll cover the last of the safe havens -- bond funds.
In the table above, review the performance of five outstanding short- to intermediate-term bond funds that have maturities of less than 10 years.
Along with bear market funds and currency funds, these bond funds represent a nice place to anchor cash when the equity waters get rough. Because bonds, especially shorter-maturity U.S. Treasury bonds, tend to see capital inflows when investors start bailing out of stocks, they serve as a natural place to run when sellers are on a rampage.
Knowing which bond funds to check out when the bear strikes is all part of the battle, and it’s yet another tool in your bear market survival kit.