VANGUARD: Even With Rising Interest Rates, Muni Bonds Are A Good Buy

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Muni Bonds Are Still An Attractive Long-Term Investment (Vanguard)

Detroit’s bankruptcy filing again raised concerns about muni bonds. But Vanguard’s municipal bond expert, Chris Alwine thinks muni bonds are attractive on a historical valuation basis. While they do face risks form Fed tapering and the debt-ceiling debate he thinks it is important for investors to “tune out short-term noise.”

“Muni bonds remain an attractive long-term investment despite the headwinds we’ve been facing. Even with rising rates, munis play an important diversifying role in a long-term asset allocation strategy. In our view, muni bonds are attractive compared with taxable bonds on a tax-equivalent yield basis. Also, muni yields have historically been less sensitive to rising rates than Treasuries, adding a stabilizing dimension to an investment portfolio.”

Focus On Process Not Past Performance (Think Advisor)

That past performance has no predictive value when it comes to investing is accepted. But the investment industry largely relies on performance goals instead of process. But there are two “notable pockets of opportunity where we can find funds and fund managers that focus exclusively on process — one relatively small and the other very large,” writes Marhsall Jaffe of Jaffe Asset Management for Think Advisor.

“There is a small universe of talented and successful investor/managers who run funds that do not stray from their (human and evolving) investment process, irrelevant to market direction, investor sentiment or headlines. Most of these managers invest heavily in their own funds and could care less about benchmarks, sectors or asset classes. They are just buying businesses — one at a time — and holding them, sometimes for decades. They keep to their knitting, learn from their mistakes and don’t sweat over the things they can’t control.

“It might surprise you to learn that the single most popular investment choice today are specialised funds driven purely by process; but I doubt investors are thinking in those terms when they decide to buy index funds. Even though the process of an index fund is mechanical and unvarying, index funds still outperform most managed funds. And thanks to Dr. Tuckett we know why: In an obsessive but fruitless drive for performance too many fund managers compromise the single most important weapon in their arsenal: their investment process.”

The Stock Market Has A Track Record Of Bottoming Days Before A Military Strike (LPL Financial)

“Although the circumstances surrounding prior conflicts have been varied, investors have experienced the same emotional response and, as a result, the markets yielded a similar outcome,” writes Jeff Kleintop of LPL Financial.

“Most military conflicts have prompted a common pattern in the stock market: impending was acted as a negative from when the United States committed to action until action began; once action began, markets rebounded. …In recent decades, the pattern changed slightly, with the stock market bottoming and starting to recover ahead of the military strike.”

Generation Z Is Getting More And More Worried About Their Finances (Investment News)

46% of Americans between the ages of 14 and 23 that are often dubbed Generation Z are worried about student debt, according to a survey for TD Ameritrade. This is up from 39% (between the ages of 13-22) in 2012, according to Investment News. And Generation Z is already getting antsy about retirement, with 39% saying they won’t be able to count on social security, compared with 31% in 2012.

Carrie Braxdale at TD Ameritrade however told Investment News Generation Z needed to be better informed in terms financial planning. 44% said a savings account was the best way to save for retirement, compared with 11% that said investing in the stock market is the best way to save for retirement.

That Correlation Between Stocks And The Fed Is Disappearing (Pragmatic Capitalism)

There has been a positive correlation between S&P500 returns and the Fed’s quantitative easing program. But this has changed. “In fact, the 26 week rolling average between the S&P 500 and changes in the Fed balance sheet have been notably negative in the last few months,” writes Cullen Roche of Pragmatic Capitalism. “This doesn’t mean the ‘tapering’ doesn’t matter, but it does appear as though the equity market is becoming less concerned with the risk of a reduced balance sheet.”

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