Mohamed El-Erian issues a dire warning to stock and bond investors — but also offered 1 shockproof asset for safety

‘Get out of these distorted markets’: Mohamed El-Erian issues a dire warning to stock and bond investors — but also offered 1 shockproof asset for safety

Due to rampant inflation, holding cash may not be a wise move. (Higher and higher price levels erode the purchasing power of cash savings.)

That’s one of the reasons many investors have been holding stocks and bonds instead. But according to Mohamed El-Erian — president of Queens’ College, Cambridge University, and chief economic advisor at Allianz SE — it might be time to switch gears.

“We need to get out of these distorted markets that have created a lot of damage,” the famed economist tells CNBC.

Both the stock market and the bond market have been tumbling lately, and El-Erian notes that when these market corrections happen simultaneously, investors should move to “risk-off” assets.

“What we have again learned since the middle of August, is that [stocks and bonds] can both go down at the same time,” he says. “In a world like that, you have to look at short-dated fixed income, and you have to look at cash as an alternative.”

You can hide your cash under a mattress or put them in a savings account. Or, you can use ETFs to tap into the so-called “short-dated fixed income.”

Here’s a look at three of them.

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Vanguard Short-Term Bond ETF (BSV)

Vanguard is known for its low-cost ETFs that track major stock market indices. Through these ETFs, investors can gain exposure to large portfolios of stocks.

The company does the same with bonds.

Check out the Vanguard Short-Term Bond ETF, which aims to track the performance of the Bloomberg U.S. 1–5 Year Government/Credit Float Adjusted Index.

The fund has a strong focus on U.S. government bonds, which represented 67.9% of its holdings as of Sept. 30. At the same time, it also invests in investment-grade corporate bonds and investment-grade international dollar-denominated bonds.

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Right now, the 30-day SEC yield on BSV is 4.75%. The fund boasts a very low expense ratio of just 0.04%.