David Spika

speaker

71 appearances 1 recordings 1 series first heard Jul 2018 last heard Jul 2018

David Spika’s voice in public audio — every appearance, attributed to the second.

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WSJ Your Money Briefing · This Should Worry Investors for the Rest of the Year · 30 Jul 2018 podcast

And we're at that point now.

That's when there's a lot of risk that investors don't really notice.

So taking some money off the table, reinvesting in less volatile asset classes.

Even bonds are a little bit dicey at this point, but there are other asset classes that make sense to own at this point.

In this environment, bonds are just as expensive as stocks are.

With interest rates at historic lows, we're now seeing the Fed start to raise interest rates.

Another thing I don't think investors realize is credit spreads on corporate bonds are very narrow.

So not only can you be hurt when interest rates go up, you can be hurt when those credit spreads expand.

So a credit spread would be the yield on a corporate bond relative to a comparable maturity treasury bond.

So treasuries are risk-free.

It's an obligation of the U.S.

government, whereas all corporations issue debt, and that's not risk-free.

So it's a difference in that yield.

And as that yield contracts, the bonds are getting more and more rich and more and more risky.

So at some point, that yield has to expand, and that usually happens when you're getting close to a recession.

There are asset classes that are available today.

Liquid alternative strategies is an example that offer protection against rising interest rates and also offer protection against volatility in the stock market.

So those are asset classes that can be varied from currency to option strategies to long short equity strategies, things that don't have that interest rate sensitivity that bonds have, but also will protect you when the stock market declines.

So it's a bit of an insulation.

Absolutely.

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