Knowledge builds confidence.

Bond Market Commentary

Keeping Things in Context

By Douglas Drabik
January 16, 2018

Thanks to the continued advancement of technology and communication, we are inundated with immense amounts of data, information, analysis and opinion. For the most part, it is informative, significant and accurate. So what’s the problem? The problem is that we are inundated with immense amounts of data, information, analysis and opinion. For the most part, it is informative, potentially significant and hopefully accurate. But, is it relevant? Does the average investor have the time to discern its accuracy and application to their situation? Whose opinion should we listen too? In addition, keeping things in context isn’t as easy as determining whether information is logical or correct.

Manufacturers often promote their products through the endorsements of entertainment stars. For example, do we really care that George Forman endorses a grill, Betty White eats Snickers or Ellen DeGeneres uses American Express? The answer is yes! According to Strategic Content Marketing, people like a familiar face and want to be like that person. They assume that the product must be quality and remember it because of the celebrity endorsing it. Can a parallel be drawn to the bond market? For example, if Warren Buffett makes a statement about a market or interest rate direction are we more apt to listen? He is a familiar face and what investor doesn’t want to have his money? Because he does something, does it stand to reason that we should do it? When we read that a majority of economists are forecasting higher interest rates and stocks are going to go up another 25%, should we sell everything and put 100% of our money in the equity market? When a well-known individual predicts the doom of the municipal market as we know it, should we liquidate the sector?

Are your taste buds the same as Betty White’s? Maybe, maybe not. Are your investment goals, purchasing power or ability to withstand market risks the same as Warren Buffett’s? Hopefully but not likely. Can you afford to “bet” your future on the accuracy of economic forecasters? Maybe but probably not. Here’s the good news. As bond market investors, we are far less reliant on future market conditions than we are on present market conditions. This message is particularly for bond investors that use fixed income assets as a means to protect their wealth through strategic investing. Many of the messages, opinions and analysis offered in the media support tactical investing, investing that is concerned with the total return and/or active pursuit of asset growth (i.e. trading based on a short-term price movement). Strategic bond investors protect capital with predictable cash flows, defined income and the knowledge of when the face value of their investment will be returned.

Comparing risk tolerance levels can be dangerous. It does not matter if the predictions or asset allocation of a billionaire or an analyst on TV turn out to be right or wrong. The billionaire can afford to be wrong and the analyst providing their opinion is not necessarily vested in their idea and/or financially positioned the same as the recipients of the message. The bottom line is that most investors cannot or should not risk altering their future based on just anything. This is one of the sound reasons why appropriate asset allocation is a topic we dwell on. This is not to criticize, judge or rate opinions, stories or information available but rather to suggest that not everything out there is appropriate for our personal situations. Keeping things in the right context means filtering information based on your own unique situation with specific goals, objectives and risk tolerance level.

Knowing information is accurate is only half the battle. Knowing if it pertains to you completes the exercise. Your investment advisor is here to help sift through the relevance of all you hear and read. If you don’t know, just ask and they will keep things in context.


To learn more about the risks and rewards of investing in fixed income, please access the Securities Industry and Financial Markets Association’s “Learn More” section of investinginbonds.com, FINRA’s “Smart Bond Investing” section of finra.org, and the Municipal Securities Rulemaking Board’s (MSRB) Electronic Municipal Market Access System (EMMA) “Education Center” section of emma.msrb.org.

The author of this material is a Trader in the Fixed Income Department of Raymond James & Associates (RJA), and is not an Analyst. Any opinions expressed may differ from opinions expressed by other departments of RJA, including our Equity Research Department, and are subject to change without notice. The data and information contained herein was obtained from sources considered to be reliable, but RJA does not guarantee its accuracy and/or completeness. Neither the information nor any opinions expressed constitute a solicitation for the purchase or sale of any security referred to herein. This material may include analysis of sectors, securities and/or derivatives that RJA may have positions, long or short, held proprietarily. RJA or its affiliates may execute transactions which may not be consistent with the report’s conclusions. RJA may also have performed investment banking services for the issuers of such securities. Investors should discuss the risks inherent in bonds with their Raymond James Financial Advisor. Risks include, but are not limited to, changes in interest rates, liquidity, credit quality, volatility, and duration. Past performance is no assurance of future results.


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