sovereign-investor.com / By Evaldo Albuquerque / February 6, 2013
I’ve been watching two funds with a combined $29 billion in assets under management, and 489 million outstanding shares and the chances are you have at least one of them sitting in your portfolio, possibly both.
Last year, both funds returned about 12%. And they’ve both had positive returns for the past four years.
In fact, they’ve returned an average of 16% during that period.
Because of this amazing performance, investors have flocked into these two funds, making them very popular investments. Last year, for example, they both had record fund inflows.
And that’s the big problem. Investments that are popular almost always end in disaster.
Remember how popular tech stocks were in 1999… or how popular flipping houses became in 2006?
This “Sure Bet” Will End in Disaster
After the tech bubble burst, the Fed kept interest rates low for a very long time to stimulate the economy. This led to a boom in all sorts of assets, including houses.
After investors got burned in tech stocks, they thought: “where else am I going to put my money? I already lost my shirt in stocks!”
So investors flocked into an asset that seemed like a sure bet: housing.
After the housing bubble burst, investors got burned again. Once again, the Fed kept rates close to zero.
Just a few years ago, in 2007, you could get a 5.4% yield from a safe one-year certificate of deposit. But now you have to take some risks if you want to get a yield anywhere close to that.