What’s Up (or Down) With Bonds?
We compare financial portfolios to three-legged stools composed of stocks, bonds and real estate (excluding a personal residence). Of course, the allocations within each leg of the stool and among the legs vary depending on factors exclusive to you, including age, income, lifestyle and goals.
Bonds (or fixed income securities) function as portfolio stabilizers that protect investors from the price changes common to stocks and riskier investments because they provide a fixed rate of return. Historically, when stock prices go down, as they did in 2022, bond prices go up because investors look for more secure investments with comparatively better rates of return. The year 2022 proved to be an exception from the historical norm when stocks and bonds fell together. Why? Analysts blame increases in interest rates and consumer prices.
What do inflation and interest rates have to do with bonds?
We know that when bond prices are low, yields increase and, conversely, higher yields push bond prices lower. While inflation has slowed to an annual rate of 6.5% in December, that is far above the Federal Reserve’s target rate of 2%.To investors, higher yields mean that it may be possible to generate income from high-quality bonds. For example, the composite rate (or yield) on Series I Savings Bonds issued between November 1, 2022 and April 30, 2023 has reached 6.89%, a level second only to the historical top rate of 9.62% for bonds issued during the prior six-month period.
Will inflation and interest rates continue to increase making bonds an attractive investment vehicle? Once the Federal Open Market Committee of The Federal Reserve meets this week (just prior to the publication of this newsletter) we’ll have a partial answer about interest rates. We won’t have Consumer Price Index data for January until February 14, yet even with that information, the bond market could respond to negotiations regarding the debt limit, any increase in commodity prices or supply chain interruptions due to geopolitical conflict.
Fixed income securities—mostly short-term Treasury bills, short-term government funds, money markets and TIPS (Treasury Inflation Protected Securities)—remain an important element of a three-legged long-term portfolio. In 2022, we significantly reduced our clients’ intermediate and long-term bond holdings and will continue to monitor both the equity and bond markets closely during 2023.
Take Control of Clutter Creep
Hunting trophies? Artificial floral arrangements? Pet odors? If you guessed that these top the list of things homebuyers hate, you’d be wrong. The answer is far more common: clutter. Over time, garage, closet and countertop clutter magically blend into the background. We either don’t notice or choose to ignore it.
With a little creativity, clutter is easy and inexpensive to manage. For the bathroom, how about a wall-mounted toothbrush station or shower curtain liner with mesh pockets? In the kitchen, organize mugs using an adjustable stacking device and appliance cords with cord organizers. Two winners in the bedroom are expandable honeycomb drawer separators and an over-the-door, wall-mounted, or standing mirror that hides a jewelry cabinet.
The not-so-fine print: We receive no financial compensation when you click on these links to examples of these innovative products.
How we can help
Several of our clients have asked us to meet with their 20- and 30-something year-old children and grandchildren to help them build wealth. Specifically, they want us to talk with them about:
- How and how much to save for a rainy day
- Investment options
- The employer benefits they should choose
- Creating a budget
- Finding a CPA or attorney they can trust
Our clients know that building wealth is about time in the market, not timing the market and want to share that wisdom with their children and grandchildren. We’re happy to help in any way we can.
Advisory Services offered through Obsidian Personal Planning Solutions, LLC. Securities are offered through Triad Advisors, member FINRA/SIPC. Obsidian Personal Planning Solutions, LLC, and Obsidian Personal Planning Solutions, Inc, are not affiliated with Triad Advisors.