Optimistic Outlook on US Economy from TRP Chairman & Why US Bonds are way to go?

A week ago I received an email update from TRP(TRowePrice) Chairman on the current market condition since lots going on these days. We all witnessed the wild roller coaster of the stock market last month after debt crisis in Europe, dead lock condition in the house on rising debt limits, slower economic growth and unexpected employement report.

Even this week, the market is still shows lots of sign on further downward dip with no great news on the jobs growth and expectation from President to come out with magic plan to solve the issue.  While we hear lot of negative news and feel pessimistic about the future market condition, TRP chairman’s optimistic outlook with lots of evidence for slower future growth does give little bit of hope for investors to keep on moving in chartered path instead of trying to find short term profits.  Here is the snapshot of his message,

  • The economy continues to face a number of headwinds amid struggling consumers, a mediocre housing market, and profound fiscal challenges at the federal, state, and local levels.
  • Although the current environment is not without risk, it is different than the massively overleveraged environment that existed in 2008. Banks have recapitalized, Wall Street and consumers have reduced their debt, the housing market has stabilized, and corporate balance sheets are lastly improved.
  • As a result, we believe that a “growth recession,” characterized by low economic growth and persistent unemployment, is more likely than an outright return to negative growth, or a so-called double-dip recession.

Although investors are understandably concerned about the markets and the economy, we believe that current fundamentals do not warrant some of the extreme risk aversion, and we expect markets will return to normal conditions in the next 12 to 24 months. To read the full message, Click here.

Why US Bonds are way to go?
With the above message on the back drop, Investors like you and me don’t have lot of options to put your money without shacky outlook for short term. Stocks, Funds and ETF’s depends on securities which are going to be bumpy ride for sometime. If you are long term investor, go ahead and continue your path on investing in securities and diversifying your portfolio regularly since market will come back eventually. But if you want to invest for short term to achieve your short term goals, only few options are available like High yield CD’s and I series Bonds and REIT’s.

Check out thisarticle from one of my favorite financial writer and CFP, Kevin McKinley who talks about basics of financial planning to help out  ordinary individual. In this article, he goes over why Bonds are good for anyone not just for Grandpa’s and Grandma’s. With the current uncertainity in the financial market, Bonds are still valid investment path with decent return and at sametime it helps to reduce or eliminate taxes. He also shares how EE saving bonds which are still available can be used as savings for kids education.

May be it was coincedence, I also came across a blog post from mymoneyblog.com which also talks about Bonds outperforming stock market in the last decade. See the below chart posted at savings-bond-advisor.com, it shows how I Series Bonds actually beat the Stock market over the last10 year period since 1999. I was surprised but it’s true fact. Even though Stock market performed well in certain periods, I-series bonds stayed the course to yield a steady return for the overall period. 

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In conclusion, taking the above things into perspective, investors should always plan and invest properly by diversfying in the right assets to stay positive and make few bucks more than the inflation so you can reach your long term goals. So just look out for opportunities to invest in value stocks and don’t forget to diversify in Bonds, REIT’s as well.

Stay Positive and Stay float to weather this rough economic conditions!!!

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