The bond market has traditionally been a safe place to invest without the huge volatility that stocks usually have. Lately, though, bonds have been downright dangerous. To protect yourself, you need to know some key facts about bonds.
With that in mind, in the following video, Dan Caplinger, the Motley Fool's director of investment planning, discusses three key facts you need to know about bonds. Dan starts out by reminding investors that despite the strong performance bonds have had over the past several years, they traditionally underperform the stock market by a wide margin. Moreover, in periods of rising rates, bonds can perform very badly. He points to the recent performance of the iShares Barclays 20+ Year Treasury ETF (NYSEMKT:TLT) and the iShares Barclays TIPS Bond (NYSEMKT:TIP) as examples of just how far bonds can fall, although shorter-term bonds don't lose quite as much value.
Finally, Dan concludes with a warning about the huge levels of bond issuance among companies lately. Verizon (NYSE: VZ) recently closed a record $49 billion sale of bonds tied to its acquisition of Vodafone's (NASDAQ:VOD) 45% interest in their former Verizon Wireless joint venture, making huge ripples in the corporate bond market. Apple (NASDAQ: AAPL) also raised an 11-figure sum from bond sales recently, joining the hundreds of companies taking advantage of cheap financing. Dan reminds would-be bond investors that when companies are desperate to sell, you should be hesitant to buy.
Fool contributor Dan Caplinger owns shares of Apple. The Motley Fool recommends Apple and Vodafone and owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.