Remember, as interest rates rise, you’re able to buy bonds at higher yields. We’re not that far from an interest rate level that will be a game-changer for retirees. I like this from Jason Zweig at The Wall Street Journal:
Thanks to the recent plunge in prices, the yield on the aggregate U.S. bond market, at about 3.6%, has doubled since Dec. 31.
People always chase the past with their money. Investors added more than $445 billion to bond funds in 2020, largely because past returns were so strong. But by the end of that year, the yield on the U.S. bond market had fallen to barely more than 1%—meaning that future returns were bound to be feeble.
Investors were too enthusiastic then. Maybe they’re too pessimistic now.
The single best predictor of the future returns of bonds, before inflation, is their yield to maturity. As prices fall, yields rise, so the recent rout in bonds has raised their expected returns.
Action Line: Don’t throw your bond portfolio out the window when there’s a little adversity. Keep in mind Your Survival Guy’s Capital Structure Pyramid, and see who gets paid first in times of trouble. It’s not stockholders. If you want to discuss how to improve your bond portfolio, let me know.
E.J. Smith - Your Survival Guy
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