• The US debt crisis threatens market volatility.
• Ryan Payne of Payne Capital Management warns against investing in bonds due to a “bond bubble” forming.
• Payne prefers value stocks and overseas markets as they offer a better return with less risk.
US Debt Crisis Looms
The United States debt crisis has put an additional strain on retail investors, making it difficult for them to decide whether it is more profitable to buy undervalued stocks or dive into the bond market.
Bonds vs Stocks
Bonds are debt securities issued by governments, municipalities, or corporations to raise funds from investors who lend money for some time. When you buy a bond, you will collect interest from the issuer but do not represent ownership of the company. The Federal Reserve’s policy can change the yield of bonds which could lead to losses for investors. Stocks, also known as equities, represent the ownership of a fraction of the issuing corporation and do not depend on interest rate hikes like bonds do; however, they still fall prey to overall policy changes in times of high volatility.
Payne Warns Against Bond Bubble
Ryan Payne, President of Payne Capital Management (PCM), warned investors against investing in bonds due to what he calls a “bond bubble” forming because of large amounts of retail money being invested into this sector over the last ten months. Instead, he suggests looking at value stocks and overseas markets as they offer better returns with less risk than other investment options such as bonds or S&P 500 index stocks which have been battered lately due to market conditions.
Riskier Investment Options
Since value stocks are more risky investments than bonds or S&P 500 index stocks it is important for investors to understand their risks before investing their money into these types of assets as there is no guarantee that they will be able to recover their principal investments if prices drop too low. Investors should also consider diversifying their portfolios so that if one type of asset does not perform well then other assets may help balance out any losses incurred from one particular asset class.
In conclusion, although there is much uncertainty surrounding US debt and its effects on markets globally, retail investors can still find opportunities in undervalued stock markets and overseas markets if they understand their risks before investing and properly diversify their portfolios accordingly.