Whitewater rules are different than flat-water rules. And if you want to survive and even thrive when things get rough, you need to adapt to the new conditions.
Rule number four is to be flexible. Your strategy may not need to change, but your tactics probably do. Rapidly changing investment conditions may make some securities extremely cheap or expensive. You may need to adjust your thinking to take advantage of them.
An example right now would be TIPs, inflation-protected bonds issued by the Treasury. Right now the expectations for future inflation are so low that TIPs are very cheap. In fact, in order to justify holding regular Treasury bonds versus TIPs, you’d have to expect inflation to average less than 1% for the next 10 years. With the Federal government printing so much money to get us out of the financial crisis, it’s a pretty good bet inflation won’t stay that low for very long.
Roiling markets can splash up some real bargains now and again. When the market changes, you should, too.
Douglas R. Tengdin, CFA
Chief Investment Officer
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