During uncertain economic times, investors typically rush toward U.S. bond funds.
When stock markets are falling, investing in bond funds seems like the safe and wise decision. But prudent investors should hold to a long term perspective.
In the short run, anything can happen, but I am virtually certain that my long-term prediction about inflation will prove correct. As I wrote four weeks ago and as we saw this week, six central banks are beginning to print money to inflate the European economies and save their banking system.
This is a risky strategy, and on thing is certain – printing money will create tremendous inflationary pressures around the world.
As inflation ignites, interest rates will rise and the value of bond funds could drop 10 percent to 15 percent. The exact timing for this is difficult to predict, by my advice for investors is to avoid bond funds.
Those who prefer no risk should defer to a money market in the short run. For long-term investors – as we all should be – I recommend buying both large company stocks that pay dividends and also utility stocks. I like Procter & Gamble Co. and McDonald’s Corp. For utilities, consider the Utilities Select Sector SPDR and Dominion Resources Inc.