I remember listening to one of my parents’ friends talk about retirement. He was proud that his tax-free income was covering all of his expenses. Although I was in a pretty low tax bracket at the time, I liked the idea of not having any deductions from my paycheck. I didn’t know it then, but he was saying that his entire portfolio was in municipal bonds, which are generally exempt… Read More
Last week, I showed four charts that all said the same thing: US stocks are a little expensive when compared to fundamentals (click here to read the article). You could fairly accuse me of saying the same thing this week, but this time, I’m using the bond market. The chart below shows the spread (or difference) between high-yield bonds. High-yield bonds, also known as junk bonds, are issued by companies… Read More
I am as happy about the strong market rally as the next guy. Still, I was caught off guard when I saw that the S&P 500 is up 25 percent per year since the bottom around the pandemic. Of course, the Financial Times journalist said that they picked an unfair start date since stocks were down about a third at that point. But still, even if we pick a neutral… Read More
Perhaps the subject line should have read: Happy Old Year! Today will be brief but take a moment to look at the charts below, which show the return for various stock and bond market indexes in the fourth quarter and for the year that was. The worst major asset class return was just shy of 10 percent, and the best was more than 26 percent – a result that almost… Read More
Before the big rally last week, a client asked me whether bonds had become more volatile than stocks. Although he was partially kidding, his point was right on: bonds have been volatile this year, especially in recent weeks. And the rally last week still adds to volatility, it’s just easier to stomach when prices are rising. To illustrate the rise on bond volatility, I calculate the 20-day rolling volatility of… Read More
Every investor suffered losses last year because the two most basic investment building blocks, stocks and bonds, both lost value. Many of the investment community’s intelligentsia are in a twist because the correlation between stocks and bonds is now positive for the first time in two decades. They say, full of sound and fury, that bonds offer less diversification now that the correlation is positive. My goal today, without getting… Read More
Chris and Cliff forwarded me an article last week asking: what would you do with your portfolio if you knew what was coming? The article referenced the still unresolved debt-ceiling situation and proceeded to list many pretty lousy events over the past 30 or so years. It made me think of a chart we made when we started Acropolis with small images depicting awful news with the growth of a… Read More
In the first quarter issue of Portfolio Insights in 2017, I wrote that Acropolis was phasing out our exposure to inflation-protected bonds, also known as TIPs (for Treasury Inflation-Protected Securities). At the time, inflation was low and stable, and although I whole heartedly supported removing TIPs, I wondered what would happen when we were hit with surprise inflation, which is when TIPs work best. Well, it took five years for… Read More
Stocks were sharply higher last week, more than erasing the prior week’s declines. Although Wednesday suffered a tough selloff of more than two percent, Thursday’s 5.6 percent rally and Friday’s 0.9 percent move higher took the S&P 500 Total Return for the week to 5.9 percent. The big move is easily attributed to the better-than-expected Consumer Price Inflation (CPI) index, which was finally a step in the right direction (more… Read More
Since this bear market started, I’ve concluded several articles by saying that we’ve planned for this. When I say this, I don’t mean that we predicted what would happen this year or why – we didn’t. I mean that we’ve planned for this in two ways. First, we knew that the returns this year were possible, and second, we’ve included bad returns in our financial planning models to estimate the… Read More
