Our Romance With Stocks Being passionate about investing is good. Just don't fall in love.
(MONEY Magazine) – My wife and I were taking a romantic walk along the beach last weekend, and we found ourselves talking about bonds. No, we're not investaholics, obsessed with the market's every quiver. But we needed to make some decisions about savings we'd set aside for our kids' future college bills.
So we discussed the options (Treasuries, zero coupons, munis, TIPS and so on) and the risks (default, interest-rate moves, call dates).
As we stopped to watch a crab scuttle across the sand, my wife expressed what we'd both been thinking: "It's so complicated with bonds. Why even bother?"
That's been the investing public's basic reaction to bonds too, as the stock market--more glamorous and seemingly simpler to understand--has surged ahead. Bonds have been seen as an asset class that merely drags down a portfolio. But bonds offer something that stocks do not--something important enough that, before our walk on the beach was over, convinced my wife and me to buy some. That thing is certainty. As she put it, "We'll be sure to get our money out."
At this stage of the bull market, it seems only prudent to remind ourselves about bonds. That's why the lead story in our investing section, by writer Laura Lallos, on page 33, focuses on fixed income. Not many people brag about their bonds on the golf course or in online chat rooms or beside the office watercooler. But if you're one of the many investors who got crushed in the first half of the year by the Nasdaq's decline, perhaps modest, predictable returns in at least a portion of your portfolio is the antidote you need.
As investors, we tend to fall in love with what's working--with certain stocks or mutual funds, with winning personalities like Peter Lynch of Fidelity or Abby Joseph Cohen of Goldman Sachs. It's a perfectly natural reaction. But our passion can blind us to the true complications, and risks, of investing. This month, we present our midyear investors' guide, which begins on page 75 and focuses primarily on the opportunities we see ahead--the budding romances. But the issue also includes a deeply personal and revealing article by senior writer Pat Regnier about the hidden assumptions we make in choosing investments. In "Heroes and Losers," on page 94, Regnier--who began his career at Morningstar and focuses on mutual funds--examines the question of just what it takes to pick a winner. The answer, he concludes, is much murkier than we'd like to admit.
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ROBERT SAFIAN Managing Editor