The extra speedy move of interest rates upward have put pressure on “Safe” assets, notably bonds or fixed income.
As reviewed here in great detail and with a special video on the subject, as rates rise, headwinds are created, BUT the opposite is true…. rates stabilize or even lower, big tailwinds…
Have Rates Peaked ?
Using the 10 year treasury as our marker for this review, after peaking 3.15% a few weeks ago, rates have come in and are now around 2.76% …. Progress and stability!
Here is a zoomed in chart….
Just like the change from Winter to Spring to Summer, it rarely occurs in a straight line…. remember also this longer term rate (10 years) is a measure of economic growth and will not be directly effected by the Federal Reserve overnight rate increases (thats our checking accounts)…
The third post of a neat (well we think so) new idea, series we discuss “Protection Planning” !
This series is a review of the basics, and will serve as somewhat of a semester study of the Financial Planning foundations all the way to more advanced topics later in the series…. We plan on a mid month release of each part and somewhere south of double digit parts…. possibly with a video added to each for additional insights…. thanks in advance for sharing with those who may find this series helpful….
In this Debt Planning section we cover from a high level …
The Good, the Bad and the Ugly Forms of Debt
Yes there are some debts that or ok, but there are also some that are very much sinners….
Review that Social Security Statement
In this annual reminder post, receiving a weekend email alert directly form the Social Security Administration our review was set in motion and a new post was born….
Happily as mentioned in the post, the SSA had updated the site and there are really neat new features such as a graph for delayed benefits and a neat spousal calculator.. Well done guys!
Please be sure to take 5 minutes and review that your hard earned earnings are being credited to your Social Security Benefit/Number!
Capital Market Comments
Interest Rates Jump Ahead of Fed – Short Term Pressure on Bonds Long Term Gain
While this post concerning how the bond markets, more specifically the two year and ten year treasuries front run the FOMC (Federal Open Market Committee) we also want to remind that such movement, especially seen in the two year treasury puts pressure (lowers) on the value of the bond but also ups the income from the bond……
So initial headwind, and eventual tail wind…yay
Re-Review “The Anatomy of a Slowdown/Recession” the Snap Back
With market jitters creating headlines and lower values, in this post we reviewed our luckily timed lead article in our Q 1 2022 Newsletter article, called the “Anatomy of a Slowdown”
The main purpose of the article and the re-run is to remind everyone INCLUDING OURSELVES, slowdowns (markets dropping in value) do occur, and while we don’t want them to, they do anyway!
In this post, we review three very large what we coined snap backs…. large rallies of 5%-to over 10% which are for some reason very confusing during slow down times and also tend to totally ignore headlines…
No idea for sure WHY they happen, just know they do … thought worth reminding as some great questions came in on the subject.
Have a Great Day, Talk to You at the End of March! Going fast this year!!!
With the handy, cell phone which is almost like carrying around a powerful computer, replacing our land lines, in this post we remind all to be very careful in which calls you answer and most importantly clicking on a hot link of a text you may have received on you cell… DO NOT BITE!
Here is an example of a very dangerous spam text – do not click on that hotlink as you will be directed to a bad place that may cause your cell harm…
Grant Williams Podcast with Sam Zell
A new found favorite way of continued learning and education, frequently while jogging or walking, in this post, a review of a fantastic hour long podcast with Sam Zell via the Grant Williams Podcast series…
Staying Power is the name of the game… No surprises!
Real money by long term holdings, be patient.
Will you slow down? People ask me that all the time…”Slow down from what…I like what I do,”
Capital Market Comments
Bonds, Interest Rate Headwind Reminders
In 2018 as interest rates smartly began rising, we reminded folks, those especially with more conservative allocations (larger allocations to bonds) that the immediate effect of higher interest rates are a slight headwind to bond portfolios. For the record, they are big headwinds to very long dated bond portfolios i.e. 30 years, which is why we stay away from such portfolios…
Fast forward to the beginning of the year and very recently, we felt the need to remind again here. The fantastic news is that with shorter dated portfolios as mentioned above, this headwind turns into money in our pockets in the form of higher income as rates again smartly rise on the expectation of greater economic growth prospects.
Have a Great Day, Talk to You at the End of November!
Almost every portfolio needs some type of bond investment. Bonds cushion movements during volatile times, kick off regular interest payments usually very frequently and act as a foundation for the entire portfolio.
Bonds are the voice of reason in our portfolios… Much like the friend you had that always calmly mentioned the risk associated with some youthful action that upon second thought was not a good idea…
While a cushion and form of stability during bad times, during higher interest rate times, they act as a small headwind.
Bonds and Interest Rates – Tug of War
As interest rates move up, bonds face a bit of a headwind in the short term, but eventually they catch up to the new higher prevailing interest rate through either maturity in the form of individual holdings or run off in Mutual Fund Holdings.
The following chart show a good example of rates down, bonds up and then the change of rates up and bonds down a bit…
Green = Rates Red=Bond Fund
Just a friendly reminder of short term headwinds by our must have friend, the bond!
Have a Great “Bond v Interest Rates” Reminder Day!
In true Tortoise and the Hare like fashion from the old school fable …..
There’s a tug-of-war that goes on between the turtle and the hare…..
We all know the ending, although some endings have changed over the years, but stay with us for just a second, as we bring a financial parallel to our fable.
In our interesting story, bonds are the Tortoise and the Hare are Equities/stocks.
Why most need Tortoise/Bonds in their portfolios
Bonds are truly like the Tortoise as they’re more slow running, BUT also importantly, slow to lose value.
Equities/stocks carry Hare like returns that generally, over the longer term are faster, but in true Hare like fashion, can get really sidetracked at times (think October – December of 2018 Amateur hour time.)
Here is the Great News in our Story – You can do both!
The good news about investing, unlike the fable is that you don’t just have to be one or the other, but you can mix.
We would argue that mature (larger or for more mature folks) portfolios need a Tortoise for stability during bad times as well as the yummy income that bonds produce!
As the portfolio grows or the income needs rise, more Tortoise may be needed.
Early portfolios that have heavy contributions can frequently be all Hare/Equities/Stocks as the contributions making up a great percentage of the portfolio act like a stabilizing Tortoise.
Normal progressions may be 75% Hare, then 50% then 40% and 25% or less Hare are frequently ok …. with the remaining portions being Tortoise of course….
One of our favorites are 50/50 Hare to Tortoise ….
Another great part of having both in a portfolio is they tend to offset themselves naturally during bad times – when Hare/Equity/Stocks get smacked, almost inevitably Tortoise/Bonds have a field day – multiple reasons such as interest rates dropping when Equities rise and visa versa, as well as a Tortoise safe haven…
There are always unique situations such as all Tortoise due to immediate need or just dislike of volatility and all Hare when there are no needs for the future.
Look for a greater depth information in our coming Newsletter with possible follow up items and details here.
Needless to say we are fond of both the Hare and Tortoise.
Welcome to our Video and Audio Podcast Review of our Q 4 2018 Newsletter. For those on the road or just unable to grab the time to read, our podcast type review gives you the behind the scenes insight to our thoughts, observations and deep views of the entire Newsletter.
In this hugely in depth article, first we discuss the effect of earnings eventually driving capital markets, but disconnects can occur. It can even be a good thing for Capital Markets to WAY underperform earnings, as they are this year because in brings valuations back in line.
Here is the key graph
Higher Rates, a Short Term Headwind, Eventually a Tailwind
With sustained lower rates over the last decade, memories have faded on the tugging headwinds that higher rates have – IN THE SHORT TERM – on the mandatory safety asset class of bonds.
Higher rates are a great thing as Bonds/Fixed Income Assets have a place for almost all investors due to their safety and liquidity.
Once the headwinds subside our fixed income investments will have ridden the yield curve higher and begin paying more income in the form of yield – into our pockets – Finally!
Too High of Rates Can Create Trouble
Too high of rates or an overshoot CAN create trouble … or a recession…
Our friends at JPMorgan – historically show that rate is about 5% – yea FIVE percent –
We disagree and think a lower level may now be this tipping point, due to the decade low interest rate level we have just experienced-
Current at two percent, we have a long way to go before getting too antsy
Inverted Yield Curve Update
So far to good- no inversion yet!
This series of articles came out of no where and in like domino fashion, once one was done the next took form and fell into place-
App of the Quarter – Hardware
Our editor took the fancy picture out due to copyright fears, but our experience with the Firestick has been exceptional – Here are the highlights of our findings
Great Savings compared to just full service in many cases
Does not take as much internet speed as we thought
After over a decade of not only lowering of rates, but SUPER low, interest rates, it is no wonder we have forgotten the short term relationship of bonds and interest rates.
Over the short term, when rates are going down bonds go up and just the opposite as rates are increased. Pair that with extremely low – zero – rates and the gradual increase in rates, which causes a natural headwind has caught many by surprise, especially after over a decade of lowered and low rates.
Ok, so it is a little busy – but it directly shows our point – as rates go down, bonds go up and then as rates go up bonds down. This is a short term phenomenon as once rates stabilize, bonds do as well.
We are happily welcoming higher rates as we think they are much needed – even though they present headwinds for a much needed safe asset class, Bonds – in the SHORT term!
Welcome to our monthly review, which includes a video for further clarity and a lighter touch to the world of finance. At the beginning of this year we also added a special financial planning monthly tip to break up the monotony. Let’s get started.
BREAK IN: THIS VIDEO COMMENCES WITH AN ALL NEW AUDIO SYSTEM, SUCH THE DELAY, WE ENCOURAGE YOU TO TAKE A MOMENT TO WATCH/LISTEN AT YOUR CONVENIENCE !
Cell Phone Pricing Wars Means Money In Your Pocket
This months financial planning tip came by accident from our own personal experience. Earlier this year the big two cell phone carriers commenced in a pricing war. Our discovery, originally from an investor standpoint, soon turned consumer. After multiple confirmations other than just ourselves, we feel certain we are on to something.
The trick of this discovery is you must log into your carrier and review your current plan. So far by pointing this out we have helped with several thousand dollars of savings. Next time you pay your bill, take 30 extra seconds and click on your current plan, you may find significant saving are available.
Taxes – The Toughest Season in A Decade
This years taxes are the perfect storm for the following reasons.
Tax payer relief act has sunset, diminishing many relief items.
Phase Outs (restrictions of tax write-offs) are making for higher taxes due.
AMT (alternative minimum tax) is making it’s presence known.
Basis reconciliation is still troubling.
This year, do not feel bad if your taxes are greater than years past and it is taking longer. The entire financial community has been slowed by this year’s tax season.
Market and Economic update
As mentioned in our cover letter and Q 2 2014 Newsletter, both on the presses and cyber ramp currently, the capital markets have gone no where so far this year. Bonds, the lumbering giants of safety have been the real winner in March as well as through the first quarter of the year.
It’s about the bottom of the second inning of the 90 day treadmill we call earnings season, and so far it looks pretty good. Managers are executing well, given the continued slow growth economy that continues.
Earnings Update, Bonds not Listening
While earnings as mentioned above in our opening are doing ok, bonds are telling a more conservative story. Lower interest rates, higher bond prices infer a slowing. With a very weak recent non-farm payroll number (75k actual versus 175k expected) and a few weaker China economic numbers, the bond guys are … at least at this point (pretty short-term, so maybe just a glitch, but we are watching) leaning towards a slower future. The good news is time will let us know who is correct.
Looking into the next several weeks, the weekend’s look rather full as the calendar shows travels ahead. This weekend in fact, is packed full of fun with sports, several meetings, and some rest time with the family before the travels ensue.
Over the most recent weekend during several family, client, and friend gatherings, I had the opportunity to visit several times about investing….a recurring theme kept happening, such the article.
Bonds Can Lose Money
Multiple times over the weekend the subject of bonds not losing money arose. While there are few certainties in investing, if you hold a long-term bond AND interest rates rise, YOU WILL LOSE MONEY IF YOU SELL EARLY….Who really wants to lock in a 30 year bond at 3% today ?
These topics come up as everyone is beginning to search/stretch/reach for yield. DO NOT DO IT! It does not end well.
We have no idea when exactly rates will rise or even if they will. If rates rise, and as an investor you are stretching for yield, you will very likely be hurt. When the music stops there may be a fight for the exits.
Safer Investing in Bonds Today
Here are a few keys to help keep losses to a minimum if rates rise. Even in this scenario, losses may occur, although they should be minimal.
Stay in shorter terms (1-5 years, 7-10 MAX)
Favor higher quality over lower
Diversify (Corporate, Muni, Foreign)
On the Road Again
With a flight out tonight, I find myself out of the state and happily, lightly tethered via electronics. I will be back in the saddle in full force next Monday!
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments may be appropriate for you, please consult your financial advisor prior to investing!
The is the vocal portion of J.K. Financial, Inc. a Dallas Texas Based Fee Only Total Wealth Financial Planning Firm. Founded by John Kvale, a Dallas Texas Fee only Financial Planner and Total Wealth Manager.