Bye bonds or buy bonds?

Bill Parrott |

I started my investment career in 1989 when the 30-Year US Treasury Bond yielded more than 8%. Investors were reluctant to buy bonds because they worried interest rates were going higher. They remembered the double-digit yields from 1979 to 1985; convinced interest rates would climb again, they kept their money in cash. Thirty-two years later, they are still waiting for rates to rise. 

Chart, histogram

Description automatically generated

Today, interest rates are a fraction of where they were many years ago, and investors are still focused on rising rates. Reluctant to buy bonds for fear of missing a rate rise or losing principal, they keep their money in cash or a money market with a near 0% yield waiting for the Fed to raise rates. Though rates are low, investors should not ignore the safety, and income bonds provide to a portfolio. 

Chart, line chart

Description automatically generated

In the October 1, 2015 issue of Fortune Magazine, Josh Brown of Ritholz Wealth Management outlines a compelling case for owning bonds. He suggests allocating a portion of your portfolio to bonds to help "cushion a portfolio for down years." Adding that stocks and bonds have only had three times where their returns were both negative – 1931, 1941, and 1969. He suggests investors should ladder their bond portfolio, which will help investors with "a built-in-defense mechanism against a gradually rising interest rate."

In fact, when stocks fell in 2002 and 2008, bonds performed well. In 2002 stocks dropped 22.1%, bonds rose 17.8%. In 2008 stocks were fell 37%, bonds climbed 26%.

So, I would recommend giving bonds another look.  

Bye, bye and buy bonds.

I would never be 100 percent in stocks or 100 percent in bonds or cash. ~ Harry Markowitz

November 10, 2021

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM's custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren't suitable for every investor.