New Investment Choices

by | Sep 11, 2023 | General

There is now an alternative to stocks

It’s back to normal for the 10 year Treasury Bond, as the chart below illustrates. In fact, with the bond yielding just over 4%, it is trading at its average yield since World War II. We think this approximates the yield investors can expect from a fixed income portfolio. One thing we are certain of – the experiment with zero interest rates is over.

What does this mean for our portfolios? It should make future returns less volatile and more predictable. Here’s why:

  • Instead of earning next to nothing from fixed income, we can expect something between 3% and 5% from our non-stock investments.
  • This makes a balanced portfolio a lot more “balanced.” We now have the opportunity to generate returns on the entire portfolio, not just the stock allocation.
  • Balanced accounts will be less risky. And for clients depending on their portfolio for income, the certainty of funding that income has increased substantially.
  • At some point, it will be prudent to move to longer term bonds (like the 10 Year Treasury) locking in rates of return over years, not just months.

Getting here was a painful process as interest rates increased in 2022. Bonds are now in the third year of losses, an unprecedented bear market for fixed income investments. We avoided those losses by buying only short-term bonds, settling for low yields.

But at this point, we think the worst is over for bond prices, and we can safely go back to normal allocations between stocks and bonds. 

We welcome this new normal. 

Best regards,

Daniel A. Ogden

Dock Street Asset Management, Inc. is an investment adviser registered with the U.S. Securities and Exchange Commission. You should not assume that any discussion or information contained in this letter serves as the receipt of, or as a substitute for, personalized investment advice from Dock Street Asset Management, Inc.

It is published solely for informational purposes and is not to be construed as a solicitation nor does it constitute advice, investment or otherwise.

To the extent that a reader has questions regarding the applicability of any specific issue discussed above to their individual situation, they are encouraged to consult with the professional advisor of their choosing.

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Our comments are an expression of opinion. While we believe our statements to be true, they always depend on the reliability of our own credible sources. Past performance is no guarantee of future returns.