I got a real interesting question the other day from someone who wanted to know if Utility stocks were a good thing to buy if you expected a market crash. Basically, if the market is going to crash would utility stocks do less bad than other areas of the stock market. In a world where people have fixed allocations to stocks regardless of what is happening in the market this is a great question. If you have to be invested in the market it makes sense to find those areas that will be hurt the least in a market crash. But, why do you have to be invested in the market? If the market does crash, which it will eventually because it always does every once in a while, then why try to find areas that will lose the least? The better idea is to get out of stocks entirely and into cash or Treasuries and wait until the market starts going back up.
I am seeing the same thinking in the bond market these days. Everywhere you turn there are articles on areas of the bond market that will be hurt the least when interest rates rise. I saw one article that recommended short term Treasury ETFs like iShares 1-3 year Treasury (SHY). A quick look on CNBC.com shows that SHY is yielding .27%, that's not even worth the effort it takes to push the enter button to enter a sell order. The question should not be which area of the bond market to get into, it should be if you are getting out of bonds what do you buy instead?