We are standing at challenging point in history for financial planners. Government bond yields are low, as is the apparent rate of inflation. Investors are far more concerned with the safety of their principal than with the risk of losing purchasing power.
As is so often the case, the biggest risks are those that we discount.
The possibility of a surge in interest rates appears to be today’s ignored risk, despite the warnings of many experts, including David Einhorn, Bill Gross, and Seth Klarman.
Regardless of the probability of various scenarios for future inflation or the mechanisms by which they may play out, investors and advisors should consider how to most cost effectively protect their portfolios against a rise in interest rates. Perhaps the most powerful way to do that is by purchasing out-of-the-money put options on bonds.
See full article at Advisor Perspectives...