NEW YORK ( TheStreet) -- The U.S. stock market has obviously been making new highs as bond yields have been making new lows.The big catalyst behind these good times, it could be argued, has been the nonstop purchase of assets by the U.S. Federal Reserve and its zero-percent interest rate policy. All of this is having the effect of pushing investors into riskier assets to get a "normal" yield/total return.
This circles back to proper diversification and not over-reaching for yield. A diversified bond portfolio includes some exposure to riskier bonds or bond funds but too much exposure to risky assets at the wrong time ultimately ends badly; tech stocks 13 years ago and bank stocks six years ago and riskier fixed income products will not be an exception. Many will argue that although bonds are overpriced, they are not likely to go down soon because the Fed is continuing to buy assets and will likely keep rates at zero percent until at least 2015. The flaw in this argument is the assumption that everyone will know when the bull market in bonds is ending and will all be able to exit calmly. Typical of bear markets, the end to the current bull market in bonds will come about in such a way as to not be reasonably forecasted by many people.