{"id":53,"date":"2018-06-04T10:40:00","date_gmt":"2018-06-04T14:40:00","guid":{"rendered":"https:\/\/www.macroviewim.com\/blog\/?p=53"},"modified":"2018-11-06T15:52:19","modified_gmt":"2018-11-06T20:52:19","slug":"bonds-doing-diversifications-dirty-work","status":"publish","type":"post","link":"https:\/\/www.macroviewim.com\/blog\/bonds-doing-diversifications-dirty-work\/","title":{"rendered":"Bonds: Doing Diversification’s Dirty Work"},"content":{"rendered":"

Where are interest rates headed?<\/em><\/strong> Naturally, this is a question that is frequently asked to us by both the advisors we work with and our individual clients. Our answer to clients? It doesn\u2019t matter<\/strong>. As we have touched on before, no matter where interest rates are headed, bonds should always have an allocation in a diversified portfolio.\u00a0\u00a0 For a recent example, let’s use last Tuesday\u2019s equity market drop (the S&P 500 fell -1.15%) which was largely attributed to ongoing Italian political drama and the risk of a Brexit-like event.<\/p>\n

Let\u2019s take a look at how different types of bonds performed on Tuesday.<\/p>\n\"\"\n

Investment grade bonds – treasuries (IEF), municipals (MUB), and corporates (LQD) \u2013 were all comfortably in the green.<\/p>\n

While we believe municipal bonds (both tax-exempt and taxable) offer investors the most value relative to other investment grade options, for the purposes of this discussion, let\u2019s assume for their bond allocation that an investor is equally diversified between treasuries, corporates, and municipals while they allocate 100% of their equities to SPY. Below is a study showing how various diversified portfolios performed on Tuesday, depending on the weighting in bonds.<\/p>\n\"\"\n

While the S&P 500 was down 1.15% on Tuesday, a 60% stock\/40% bond portfolio was only down 0.4%, and a 40% stock\/60% bond was flat.<\/p>\n

Going further out, here\u2019s how the same ETFs and associated portfolios performed over the last two weeks of May.<\/p>\n\"\"\n

By having just a 30-40% allocation to bonds, despite the S&P being down more than 1% over this period, such a portfolio would have achieved a positive return.<\/p>\n\"\"\n

While we don\u2019t suggest obsessing over your portfolio\u2019s performance over the very short-term, unforeseen market shocks will always occur and often give rise to an investor\u2019s worst behaviors (making rushed\/emotional decisions, selling low\/buying high, losing sight of longer-term goals, etc). Historically, an allocation to bonds has allowed long-term, goal-oriented investors the opportunity to stay cool, calm and collected when stock market volatility spikes. They\u2019ll rarely be the sexiest investment in your portfolio but bonds often reveal their greatest significance when equity markets are taking it on the chin.<\/p>\n

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Disclosure: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities.\u00a0 Full disclaimer<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

Where are interest rates headed? Naturally, this is a question that is frequently asked to us by both the advisors we work with and our individual clients. Our answer to clients? It doesn\u2019t matter. As we have touched on before, no matter where interest rates are headed, bonds should always have an allocation in a… Read more »<\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[49],"tags":[],"_links":{"self":[{"href":"https:\/\/www.macroviewim.com\/blog\/wp-json\/wp\/v2\/posts\/53"}],"collection":[{"href":"https:\/\/www.macroviewim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.macroviewim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.macroviewim.com\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.macroviewim.com\/blog\/wp-json\/wp\/v2\/comments?post=53"}],"version-history":[{"count":2,"href":"https:\/\/www.macroviewim.com\/blog\/wp-json\/wp\/v2\/posts\/53\/revisions"}],"predecessor-version":[{"id":109,"href":"https:\/\/www.macroviewim.com\/blog\/wp-json\/wp\/v2\/posts\/53\/revisions\/109"}],"wp:attachment":[{"href":"https:\/\/www.macroviewim.com\/blog\/wp-json\/wp\/v2\/media?parent=53"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.macroviewim.com\/blog\/wp-json\/wp\/v2\/categories?post=53"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.macroviewim.com\/blog\/wp-json\/wp\/v2\/tags?post=53"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}