I can’t overstate the importance of having bonds in your portfolio. Don’t seek the perfect when the good enough is right in front of you. I like this from Heather Gillers at The WSJ:
Stock portfolios at large pension funds had a blockbuster run. Now, managers are cashing out.
Corporate pension funds are shifting money into bonds. State and local government funds are swapping stocks for alternative investments. The nation’s largest public pension, the California Public Employees’ Retirement System, is planning to move close to $25 billion out of equities and into private equity and private debt.
Like investors of all kinds, the funds are slowly adapting to a world of yield, where they can get sizable returns on risk-free assets. That is rippling throughout markets, as investors assess how much risk they want to take on. Moving out of stocks could mean surrendering some potential gains. Hold too much, for too long, and prices might fall.
For pension funds, which target specific investment returns to fund future obligations, this is a welcome change: It means they can take less risk and stay on track toward those goals. They can sell stocks, lock in price gains and move the money into bonds without sacrificing too much return. Or they can continue to push for higher returns without taking on much more risk.
While stocks have slumped recently, the S&P 500 remains just 4.6% below its record close. The index’s 10% gain through the end of March marked its best first-quarter performance since 2019. Meanwhile, a persistently strong economy has pushed interest rates to multidecade highs.
The combination is leading large retirement funds to rotate their positions. Goldman Sachs analysts estimate that pensions will unload $325 billion in stocks this year, up from $191 billion in 2023.
“You don’t want to give away all of those hard-earned gains,” said Zorast Wadia, a principal and consulting actuary at Milliman. “You don’t want to give it back if stocks fall.”
Action Line: When you’re ready to talk about your bond strategy, let’s talk.
