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Ignore Bonds (at Your Peril) and Be Average, Like the Next Guy

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Originally posted November 1, 2017.

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A phrase I often hear from prospective clients is, “I don’t understand bonds, but I know I need them, and that’s one of the reasons I’m talking with you.” There’s a lot of wisdom in that phrase. It’s like saying to your dentist, “I don’t understand root canals, but my tooth is killing me and I know I need one, and that’s the reason I’m sitting in this chair.” Knowing what we need is different from understanding how to do it.

When I think back to when I first joined Dick Young’s management firm in 1998, he had a huge following of investors seeking guidance in U.S. Treasury zero-coupon bonds. Investors knew they were a safe way to keep and make money (thanks to Dick) but they didn’t really know how to construct a portfolio of them. The same was true for preferred stocks where investors needed help wading through a sea of products. And all along, the beacon over the dark horizon was the ever present “North Star,” the Treasury Bill, guiding the way. It’s doing the same today.

Today nothing has changed in terms of the T-bill’s guiding principles. What has changed is its position over horizon, if you will. Back in 1998, it was a steady beacon of light yielding around five percent. Today it’s a mere flicker yielding around one percent. What has changed? Not much as far as I’m concerned.

Just like back in 1998 my work today will revolve around conversations with clients and prospective clients. Not once have I been asked “E.J. tell me where the T-bill is this morning?” or, “How did the T-bill do yesterday?” or “Where is the T-bill today?” But, replace T-bill with “the market” and you have the beginning of a conversation about the future.

Which brings me back to 1998 when the T-bill was paying around five percent. There’s no way anyone could predict with any kind of certainty, whatsoever, that T-Bills would pay less than one percent, period. But that’s the world we are living in today and the near future. And without giving any thought to where the T-Bill will be next year or in twenty years, I can tell you without hesitation that bonds should play a role in your portfolio.

You may not understand bonds, but if you know what it feels like to lose money, you may opt for a root canal. And while everyone talks about “the market,” they continue to forget that the North Star is still shining—although not nearly as bright as it once did.

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E.J. Smith - Your Survival Guy

E.J. Smith is 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. His focus at all times is on preparing clients and readers for “Times Like These.” 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. His first drum set was a 5-piece Slingerland with Zildjians. He grew-up worshiping Neil Peart (RIP) 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 (RIP JB) and Paris. Please get in touch with E.J. at ejsmith@yoursurvivalguy.com To sign up for my free monthly Survive & Thrive letter, click here.

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