Googins Advisors Newsletter
September 7, 2023
Stocks are Risky and Bonds are Safe? No!
The common belief is that stocks are risky and bonds are safe. Nothing could be further from the truth. Lately, sales people are excited about interest yields and the “wonderful rates” people could be earning; they neglect to remind investors that interest rates (yields) have risen causing people to lose value in their current accounts each day interest rises. Are you selling an account now to reinvest in an account paying higher interest? Are you looking at more than one side of a fact? Consecutive losses chasing higher interest rates is possible.
If investors do not know basic facts, they wander around not understanding the total value realized or lost from their investments. Each investor should keep track of money put in, money taken out, and current value of the account to know if they have gained or lost money. And when is it worth taking a loss or a profit and moving on?
One can lose or make money in both stocks and bonds! Safety comes from research, knowledge, and experience. The “safer” an account is advertised, the lower the rate of return you will be offered.
Bonds: when yields go up, prices must go down.
Stocks: when prices go down, the value is frequently increasing.
Buy bonds as interest rates go down because the dollar value of the bond is increasing. This is a short term investment, the increase is a factor of how the formula works. When the downward trend of interest rate is over, the rate will swing back and forth over a narrow range, and the fun is over. Time to consider something else and take the profit before time makes the profit minimal. You cannot hold a bond and expect the value to continue to increase.
We buy stocks because they innovate and develop techniques which improve our future; we buy bonds because we think we are getting safety now. Stocks can continue on a path of increasing in value for years and years with no definite end time but bonds always have a limited time of existence. You cannot keep bonds past a particular date and if you think you have found a great bond, you may find the issuer is able to pay off early and end your “good deal.”
I do not think there is any statement I can make regarding stocks or bonds that will always be 100% accurate as unique circumstances will occur which make considering unusual factors necessary. Inflation always interferes with the bond value.
There are facts one should remember historically: the long term average return on stocks is 10.1% since 1926. Bond numbers have not been charted as long. The long term average of bonds over the last approximate 20 years is 2.99% per year, for the last 10 years ending August 31, 2023 is 1.48%. Because bonds are measured by interest rates, the federal reserve holds power over them.
The return on stocks is considerably higher than bonds over time. The return can be multiplied many times. Bonds are concerned with giving you your money back and interest along the way, it’s a weak deal.
Fear is our biggest enemy. Fear holds us back from accomplishing great things we know we could do. Fear gives us doubt and inaction; caution allows us to gather information and proceed to make wise decisions. We hope you see how complicated the ownership of bonds is. You are able, not guaranteed, to choose stocks that grow ever more valuable over time; you can choose bonds which will only fluctuate along a fixed line.
We remain committed to helping people save and invest their money so as to gain freedom in financial matters as they age. It is possible. New cars, new anything become a choice when people have saved and learned how to use their capital.
We are always grateful that you entrust your money and refer your friends and relatives to us.
Sincerely,
Louise Googins, President, Investment Advisor
Michael Googins, Administrator
Kim Rankin, Accountant
Richard Martin, Investment Advisor
Lynne Goldsmith, Investment Advisor
Dayton Hoffmann, Associate