Following the post-COVID stimulus hangover in 2022, the bull market has continued to run. One of the key factors was the Federal Reserve’s decision to
Sound the Alarm… Stay the Course
Published Date : November 18, 2013
The media is overly focused on propagating a falsehood, specifically, that bonds are now riskier than stocks. This is sensational financial journalism at best and, at its worst, potentially retirement damaging advice.
It is a universally accepted truth that the 30-year plus tail wind to bond performance, caused by falling interest rates, is now behind us. Interest rates have had their initial dramatic reset, with the 10 year yield on US Treasury bonds rising to 2.9% from the year-to-date low of 1.6% on May 2nd. Interest rates spiked on certain “taper tantrum” volatility as investors speculated that the Fed, based on its commentary, would begin to slow its purchases of Treasury and mortgage backed bonds. With the knee-jerk reaction of “tapering” out of the market’s system, we now forecast rates to rise modestly over time – as they should in a modest growth and inflation climate. We have positioned client portfolios for exactly this kind of environment with our focus on shorter average maturity, high quality fixed income instruments. This bond allocation is designed to insulate the portfolio from interest rate shocks, as well as create the opportunity to ultimately benefit from re-investment in a higher yielding market.
All is not lost for bond investors, even in a rising rate environment. Over any period greater than one year, coupon rates bail portfolios out by providing regular, current income that generates a total return not nearly as dire as the media would have you believe, even if rates rise another 1% from here. While the total return environment will be anemic, bonds will likely deliver modest compensation over a multi-year period with the added benefits of dampening portfolio volatility and providing relative safety. One need not look further than the most recent months, with stocks pulling back more dramatically, for proof of that relative safety of bonds and the important buffer they contribute to any balanced portfolio. Irrespective of the market and interest rates, the regular cash needs of clients for spending and gifts also dictate the need for fixed income in portfolios. The reliability and predictability of bond interest payments, in contrast to more volatile equity returns, ensures essential spending commitments are sufficiently funded.
There are a lot of headline risks in the world and so it is natural, particularly for those who keep themselves more engaged and knowledgeable, to get into a dark place about outcomes from time to time. It is important to remember that while other asset classes may offer greater potential for returns in today’s market, along with that greater potential for return comes greater potential for risk – a fact lost on many headline writers. Fixed income can, and should, remain core to investment portfolios due to its potential for income generation, volatility dampening and capital preservation. Looking forward, the outlook for bonds is remarkably balanced over the next couple of years and our clients are well-positioned to benefit in the long-run as we act as opportunistic buyers during periods of short-term pullbacks.
Articles and Commentary
Information provided in written articles are for informational purposes only and should not be considered investment advice. There is a risk of loss from investments in securities, including the risk of loss of principal. The information contained herein reflects Sand Hill Global Advisors' (“SHGA”) views as of the date of publication. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessarily come to pass. SHGA does not provide tax or legal advice. To the extent that any material herein concerns tax or legal matters, such information is not intended to be solely relied upon nor used for the purpose of making tax and/or legal decisions without first seeking independent advice from a tax and/or legal professional. SHGA has obtained the information provided herein from various third party sources believed to be reliable but such information is not guaranteed. Certain links in this site connect to other websites maintained by third parties over whom SHGA has no control. SHGA makes no representations as to the accuracy or any other aspect of information contained in other Web Sites. Any forward looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. SHGA is not responsible for the consequences of any decisions or actions taken as a result of information provided in this presentation and does not warrant or guarantee the accuracy or completeness of this information. No part of this material may be (i) copied, photocopied, or duplicated in any form, by any means, or (ii) redistributed without the prior written consent of SHGA.
Video Presentations
All video presentations discuss certain investment products and/or securities and are being provided for informational purposes only, and should not be considered, and is not, investment, financial planning, tax or legal advice; nor is it a recommendation to buy or sell any securities. Investing in securities involves varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for a particular client’s financial situation or risk tolerance. Past performance is not a guarantee of future returns. Individual performance results will vary. The opinions expressed in the video reflect Sand Hill Global Advisor’s (“SHGA”) or Brenda Vingiello’s (as applicable) views as of the date of the video. Such views are subject to change at any point without notice. Any comments, opinions, or recommendations made by any host or other guest not affiliated with SHGA in this video do not necessarily reflect the views of SHGA, and non-SHGA persons appearing in this video do not fall under the supervisory purview of SHGA. You should not treat any opinion expressed by SHGA or Ms. Vingiello as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of general opinion. Nothing presented herein is or is intended to constitute investment advice, and no investment decision should be made based solely on any information provided on this video. There is a risk of loss from an investment in securities, including the risk of loss of principal. Neither SHGA nor Ms. Vingiello guarantees any specific outcome or profit. Any forward-looking statements or forecasts contained in the video are based on assumptions and actual results may vary from any such statements or forecasts. SHGA or one of its employees may have a position in the securities discussed and may purchase or sell such securities from time to time. Some of the information in this video has been obtained from third party sources. While SHGA believes such third-party information is reliable, SHGA does not guarantee its accuracy, timeliness or completeness. SHGA encourages you to consult with a professional financial advisor prior to making any investment decision.
Recent Posts
