They havenât delivered as ballast, but a weakening economic environment could cast them in a better light.
[Morningstar](?utm_source=eloqua&utm_medium=email&utm_campaign=newsletter_improvingfinances&utm_content=36979&elqTrackId=a291161c217140dd80889ab961496936&elq=ae72d596217949ecbcc20a6feb6b31af&elqaid=36979&elqat=1&elqCampaignId=17305) [Improving Your Finances] Improving Your Finances with [Christine Benz]( [Christine Benz] As of this writing, the Bloomberg Barclays Aggregate Bond Index has lost about 12% for the year to date, and long-term Treasuries have lost about twice that much. Bondsâ failure to hold their value at the same time equities have been falling has been unnerving, and it would be hard to blame investors for questioning their value in a portfolio. I and others have long advocated for putting up with bondsâ shrimpy yields because of their ability to serve as ballast for investors' equity exposure. But as both stocks and bonds have fallen this year due to the same key factorârising interest ratesâbonds havenât delivered on that promise. [Theyâve moved in the same direction as stocks: down](. Meanwhile, many investors seem to be assuming that bonds will be in for an inexorable slog in the years ahead as the Federal Reserve works to tamp down inflation. But such investors could be underrating a few items. One is that higher yields are a buffer against further declines in bond prices, even if interest rates rise further still. After all, the return you earn as a bond investor is composed of two elementsâyield, mainly, as well as any gains or losses in the prices of the bond(s) over your holding period. Coming into this series of interest-rate increases, bond investors got almost no cushioning effect from their bonds. But with the yield on the Bloomberg Barclays Aggregate now topping 3%, bond investors have at least a small buffer today. Thatâs one reason why I would argue that [rising rates arenât an unmitigated disaster for retirees](. Additionally, recessionary worries have recently come to the fore as yield curve has flattened--historically a good predictor of recessions. On a fundamental basis, investors fear that the Fed could overshoot in its efforts to curtail inflation, thereby slowing the economy or even tipping it into recession. In the context of a weakening economic environment or recession, bondsâ role as ballast is more reliable. Thatâs not to suggest that the sailing will be smooth for bonds in the years ahead, and itâs one reason that my bucket portfolios include [cash]( as well as a diversified array of bonds, including [short-term bond funds]( as next-line reserves. But I think itâs a mistake to throw bonds overboard. With warm regards,
Christine Benz [David Lau: Taking High Commissions Out of Annuities]( The DPL Financial Partners CEO discusses disentangling annuities and life insurance from their high-cost, high-commission rootsâand why fixing long-term-care coverage could be next. [Listen Now]( Share: [facebook]( [twitter]( [linkedin]( ADVERTISEMENT [media]( [media] [Risk, Not Volatility, Is the Real Enemy]( Grant us investors the wisdom to know the difference. [Read More]( [How Cash Bucketing Keeps Your Retirement Spending on Track]( Leaders in retirement research share how you can set a withdrawal rate that wonât leave you with leftovers. [Read More]( [Could Required Minimum Distributions Cause You to Withdraw Too Much?]( The withdrawal rules are pretty conservative, but couples with a big age disparity should be more cautious. [Read More]( Listen Now
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