A Decade of Losses in Your Bond Portfolio

 
 

What if bonds lose money every year for the next decade? If you think you are immune, you best think again. A recent Morningstar report breaks down why this is a likely scenario, check out this link. We have been writing about this issue for some time now, it is comforting to see large mainstream organizations starting to beat the drum also.

The institutions we trust our money to may not be there to help in this situation. Here are a few mainstream strategies that will likely be impacted as a result of the bond cycle we are in: most asset allocation strategies that target any percentage of your portfolio to bonds, or strategies that are referred to target date strategies that automatically put more bonds into your portfolio as you age. Think about any investment strategy where you fill out a risk tolerance questionnaire and it predetermines an asset allocation for you. These are offered by virtually all institutions, including robo-advisors where you do this on line, and in many cases without support of any kind.

Are you at risk? 

Sadly the higher risk investors in this scenario are the baby boomer generation near or in retirement, or the more conservative investors who keep a high weighting in bonds even at an early age.  These folks will be paying for the sins of the governments and greed of the financial industry who created the 2008 global financial crisis which allowed/forced governments to drive down interest rates to historic low levels. Now, if interest rates rise globally to more average levels we can see the potential damage done to holders of government and corporate bonds.

There are options however, but most won’t even hear about the options likely until it is too late and they have seen severe damage to their bond or fixed income strategies.  Talk to your advisor today and get them to explain to you why your bond portfolio is not at risk. If they can’t, and can’t demonstrate why it isn’t. Worry, be very worried. This concern ties in with a short video we did recently on what it takes to become a rich investor.