Is it time to re-allocate some of your assets?

A New Interest Rate Environment

Most people hold bonds as a conservative posture in their portfolio because they are perceived as steady and consistent investment structures, a perception well founded since the mid 1980s when interest rates started to decline. Now, however, bonds are exposed to great risk of losing value as we have entered a new interest rate environment for the foreseeable future.

“Bond structures in a typical portfolio could easily be down 7-10% from this time last year. That’s a tough hit on the ‘safe side’ of one’s life savings.” says Patrick Johnson, our in-house fiduciary financial advisor. 

Since the mid-1980s, as interest rates started their decline to today’s historically low levels, advisors have accurately promoted investing in a balanced portfolio of stocks and bonds, allocating more bonds as one’s tolerance for risk diminished.

The well-documented rise in interest rates since the depths of the COVID crisis has ushered in a new paradigm for investors, and those who are informed are making important tactical structural changes to thrive during this new paradigm, while those who are not informed are recognizing losses on what should be the stable side of their investment structures. 

 

It’s important to remember the inverse relationship between interest rates and the value of bonds. As interest rates go up, bonds will typically go down in value, and vice versa. For those investing in bonds for the “conservative” portion of your portfolio, don’t look now but there is a good chance you have lost money on those bonds year-to-date.  

Dave Kudla, Forbes, April 2021

Staying Safe and Ahead of the Issue

Although Patrick’s clients are “safe and ahead of the issue”, people he meets with for the first time are unaware that they are currently exposed to so much risk, “Most new prospects I meet with have suffered steep losses over the last 12 months in their bond positions and are not prepared against this threat which is likely to present itself for at least another 3-5 years, or longer.”

This is such a historic moment financially, and many advisors are not prepared to offer solutions which keep the safe side of people’s portfolios working for them in a position which will outpace inflation. Patrick will address this new investing landscape and will discuss options available to investors to sail smoothly through these currently storm waters.

A good financial plan ensures that your investments support you for a lifetime. A good estate plan leverages those investments to get more of your values out of life. Why wouldn’t someone choose a firm that provides both?

Hammond Law Group offers quarterly workshops with our in-house fiduciary Certified Financial Planner, Patrick Johnson, on investment topics to help you make the most out of your money. Attend the latest to find out how to reduce your exposure to the likely decreasing value of bonds. Your money should work for you in every economic environment, even with low or rising interest rates.

Click these links to read more:

Are You Ready to Begin Investing?

Risk of Bonds Explained

Investment Management at Hammond Law Group

Attend a Client Workshop

You deserve an estate plan that changes with you. Choose a law firm committed to a lifetime of support and education for you and your family.