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Paragon advises against investing in long-term bonds


Although bonds have become popular the past two years, Paragon’s wealth managers advise investors not to put their money into long-term bonds because they believe investors could be hurt significantly if rates increase.

"It is our opinion that bond investors will be the next group of investors to get hurt," says Dave Young, president and founder of Paragon Wealth Management. "In the 2000 bear market stock investors got crushed. Then, many of those same investors moved to real estate for protection and got beaten up again in 2008. Treasury bonds performed well the entire time. As a result, since the beginning of 2009, investors have put a net USD620bn into bond funds while they have withdrawn USD100bn from stock funds. This has pushed rates to all time lows."

Paragon’s financial advisers claim that the current quantitative easing by the Fed may temporarily slow down increasing rates, but it will not stop them.

"Many bonds do not have near enough return to compensate for their downside risk," says Nathan White, Paragon’s chief investment officer. "With interest rates so low, we believe that investors will not find the safety or the returns they seek in most bonds."

White says bonds have been in a 30-year bull market, which lulled investors into a false sense of security.

“Going forward, the returns that people will likely see in bonds will be very low at best or sharply negative at worst,” says White. “Unfortunately for bond investors, we believe it could be the negative scenario.”

Paragon’s wealth managers advise investors to be aware of the maturities and quality of their bond holdings. The encourage investors to consider shortening the maturity of their bonds and adding high-quality dividend stocks as an alternative.

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