Alexandra Lebenthal, dubbed "The Queen of Wall Street" by Fortune magazine, gives bond investors three great tips on what to do in a falling market.
It’s been a brutal month for bond investors. Fears of Fed tapering have retail investors dumping bond funds at a record pace and looking losses in their bond portfolios.
So what do you do if you are one of them?
Alexandra Lebenthal is the president of Lebenthal & Co, a New York-based financial firm that specializes in fixed income. Long-time New Yorkers will remember how Ms. Lebenthal’s father Jim made Lebenthal a household name through its memorable ads from the ‘70s through ‘90s. Ms. Lebenthal sold in the company 2001 for $25 million but brought back to life six years later. Today, like her father and grandmother before her, Ms. Lebenthal is the champion of municipal bonds for individual investors.
She has three simple tips anyone looking at a loss in their bond portfolio.
1. Stay calm
Alexandra says: “Emotionally selling into a down market is usually the worst thing to do. There’s so much in the news with what’s going on with the Fed and, obviously, strong reactions in the markets. There is a tendency for individual investors to rush to sell. Quite often, that could be at exactly the wrong time. Panic selling leads to more panic selling. Don’t do anything rash.”
2. Look at your entire portfolio
Alexandra says: “There may be an opportunity to offset bond losses against stock gains. It may turn out that you can take advantage of some of the losses you may have had in your bond portfolio. Sell those bonds at a loss, buy new bonds, and then sell some stocks you had at a gain and offset your bond losses against your equity gains. And, come out quite nicely."
3. Ladder your portfolio
Alexandra says: “If you’re making new investments in bonds, ladder your portfolio. Keep investing one year out in maturity. We never know how long an interest rate cycle is going to last. In fact, if you look at this past interest rate cycle, it’s been much, much longer than people thought. Always having bonds maturing so you’re investing into any interest rate cycle is one of the smartest ways individual investors can invest. This protects against rising interest rates.”