Your Family’s Investments Require a Strategic Change
An entire generation of investment advice has collapsed in one short year.
Traditionally, bonds have been a safe and steady investment. Since the 1980s, generations of advisors have counseled investors to increase the ratio of bonds to stocks in their portfolios as they age. The relationship between interest rates and bond values is inverse. In the past year, that traditional investing advice ensured losses in your investments. If you are not aware of the way rising interest rates affect the value of bonds, you have probably already incurred significant losses in your portfolio.
In 2022 the overall bond market lost about 12% of its value. Interest rates rose more sharply than they have in 30 years.
What should a savvy investor do? The answer is to find somewhere else for your investments than in bonds for the short term. But beware, in 2022 there were not many places to hide.
The future of bonds in 2023 is uncertain. The Federal Reserve has forecasted more rate increases. Further rate increases will continue to decrease bond prices. This has led economists to suggest that the Fed should take a break and let the markets absorb the recent rate hikes. However, no one knows what will happen with the Federal Funds interest rates in the coming months.
One way to prepare for potential challenges in the bond market is to be informed to make smart decisions with your investment management. This is why it’s important to have a clear understanding of what bonds are, how they work, and how Federal Reserve policy impacts bond rates. Alternatively, you may read up on the subject or visit a professional fiduciary advisor who has nothing to sell.
Clients should consider using short duration bonds, CDs, or annuities.
As for professional recommendation, it is important to be vigilant, even cautious, when using bonds for the ‘safe side’ of your portfolio for the foreseeable future. Though bonds are yielding more than they were this time last year, the price declines could easily wipe out that yield if the Fed continues to raise rates aggressively.
If you have already reallocated prior to the increase in interest rates, it’s a good idea to stay the course and keep an eye on a leveling off in price volatility. If you have missed reallocating and still hold a portion of your investable assets in “safe” bonds, it’s still prudent to consider allocating out of longer duration positions and shifting to shorter duration. It is important to note that bonds do not work like equities, so the decision rubric is different from a ‘buy and hold’ standpoint. Consulting a professional advisor with nothing to sell is recommended. Review your portfolio and let them help you make decisions that best suit your needs.
An entire lifetime of investing strategy has vanished in the last five years. And due to interest rates, bonds are currently risky. Do not continue to risk your retirement investments on risky bonds. Learn the basics of bond investing and how our savvy clients have changed their investment strategy for the short term. Our client financial workshops, held four times each year, educate, inform and invite clients to take advantage of the 50+ year’s professional experience of our financial advising team.
Hammond Law Group clients may take advantage of a free consultation with our in-house CFP financial advisors. Review your portfolio with a professional fiduciary advisor and reallocate to get maximum returns. Further reading on interest rates and bonds:
Don’t miss our FREE FINANCIAL WORKSHOP on Interest Rates and Bonds open to all clients, guests and general public.
Rising Interest Rates and Bonds -Learn the basics of bond investing and how our savvy clients have changed their investment strategy for the short term.
Thursday, February 9th -4pm in Colorado Springs or Online