Slideshow 4 Reasons to Go Into the Bond Market

  • September 30 2013, 5:28pm EDT
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4 Reasons to go Into the Bond Market

by Kayan Lim

Sparked by recent comments by Ben Bernanke, the bond market has suffered one of the biggest sell-offs in years. Investors are instead deciding to shift their money into other asset classes, leaving current bond prices incredibly undervalued. While most people are trying to get out of the bond market as quick as possible, in his article Everyone is Selling Bonds – Sounds Like a Good Time To Buy, Andrew Ahrens, CEO of the wealth investment management firm Ahrens Investment Partners, argues that in the midst of this selling frenzy, now may be the most opportune time to jump in. If you zig when they zag, you can find buying opportunities.

1. Low Risk and Steady Income

When the economy is in a tailspin, people invest in the bond market because it is one of the safest assets they can put their money in. Fueled by Bernanke's comments, investors are starting to be more optimistic about the financial market and are looking to take more risks.

However, Ahrens urges investors to remember what makes bonds so appealing, Very few investment vehicles offer the same risk profile and steady flow of potential income presented by bonds.

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2. Value Stays the Same

With other asset classes, there is always the concern that its value might drop over time. For instance, if you invest in the stock market the value of your stock can change drastically from day to day. There is little cause for worry over the value of bonds, however.

If a bond has matured and the underlying fundamentals of the bond issuer remain sound, there is very little reason to worry about its value on the open market, says Ahrens.

3. Just a Market Trend

One look at the history of financial markets will tell you that there are always highs and lows.

With that in mind, the current landscape for the bond market is likely simply part of a broader pattern of shifts, argues Arens.

While there is certainly a higher frequency of investors moving from one asset class to the next – contrary to popular belief, the bond market still remains relatively strong. With a revitalizing economy, coupled with the Fed's expressed intention to keep long-term interest rates low, there is a high chance that the price of bonds will rise again. If you jump on the band-wagon now and sell your bonds, you could potentially lose out on a great opportunity.

4. Slow and Steady Wins the Race

Time and again, we have seen investors get burned after piling into asset classes on the ascent, only to rush out in a panic as they begin to free fall... Those who treat the bond market the same way are likely to earn the same fate, cautions Ahrens.

With the advent of technology, information has been disseminated faster than ever before. Often times if you react too quickly, and simply follow the media hype, you may find yourself chasing false leads and not making the most sound decisions. Take some time to truly consider the possible benefits the bond market could bring you before jumping ship.