It is still too early in this investment cycle to overweight cash and underweight bonds, says Jim Kochan, Chief Fixed Income Strategist for Wells Fargo Funds. Short-term rates are likely to stay low for another two years. Even when short-term rates start to rise, bonds will probably not “get killed" because yield curves will flatten. Arguments favoring cash or very short-duration strategies ignore the power of compound interest over 2-3 year holding periods. Therefore, investors should own sectors that provide the best coupon income, namely corporates and munis.

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