Your Retirement Life: Do You Understand the Value of Bonds?

By alexskopje @ Shutterstock.com

If you haven’t constructed your bond portfolio yet, then what are you waiting for? Once you’re in your 50s, the time has come to own some bonds. Consider bonds your anchor to windward.

Determining how much you, not your neighbor, needs in bonds is a most personal equation. Only you and your spouse and hopefully your advisor know the right mix for you. Period.

Unfortunately, those well into their golden years who put off bonds paid a devastating price in the two stock market crashes so far this century. So what are you waiting for? Imagine how you’ll feel in the third stock market crash this century. Understand the value of counterbalancing and you’ll be on your way to long-term investments success.

Michael Wursthorn and Daniel Kruger write in The Wall Street Journal that Americans are increasing their purchases of bond funds. They write:

Those sentiments helped drive more than $80 billion of inflows into taxable bond funds in the first half of the year, outpacing the roughly $60 billion that was pulled from U.S. stocks over the same period, according to Morningstar’s data. At the same time, asset managers including investment giant BlackRock Inc. have recently reported a substantial slowdown in inflows. Money coming into passive funds that track the market dropped 44% through the first half of 2018, Morningstar said.

Short-term bond yields have become more attractive in the meantime. As the Federal Reserve has continued its campaign to raise interest rates, the yield on the two-year U.S. Treasury note recently rose to 2.655%, versus the S&P 500’s dividend yield of 1.9%—the widest disparity since the 2008 financial crisis, according to State Street Global Advisors.

“Risk-adjusted returns on stocks versus Treasurys are not as compelling as they have been,” said Brian Nick, chief investment strategist at Nuveen.

E.J. Smith - Your Survival Guy

Preparing your investments and family for when disaster strikes.

E.J. Smith is the Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH, where he completed course-work in Practical and Defensive Handgun, Conceal Carry Pistol, Shotguns, Precision Scope Rifle and Kidnapping Prevention. E.J. plays a Yamaha Recording Custom drum set with Zilldjian cymbals. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@youngresearch.com. Sign up here to receive all the best content from Richardcyoung.com each week.