Conservative Allocations Are Down, So Are Bonds A Safe Investment?
April 19, 2022
Welcome to Wealth Enhancement & Preservation’s Market Minute, where we get to update you on everything that happened in the financial markets this past week. My name is Jake Sanders, and I am a partner at Wealth E&P and operate as a Wealth Advisor and Certified Financial Planner. I hope you had a great weekend and your week is off to a great start.
Last week in the equity markets, all three of the major indices were once again down: the S&P 500, the DOW, and the Nasdaq. I want to shift gears today and talk instead about equities, the bond market, and fixed income. Historically, a lot of people have considered bonds to be the conservative piece of their portfolio, regardless of the allocation. However, based on what is going on today, this really is not true.
This year-to-date return chart above shows the iShares Core U.S. Aggregate Bond ETF (AGG). You'll see that year-to-date, it is down 8.43%. This is with some surrogates up there too and they are all basically in the same boat.
This is a new interesting chart above of the iShares Core Conservative Allocation ETF (AOK). This is showing a conservative allocation fund, which is understandably heavy in bonds. This conservative allocation fund is actually down year-to-date worse than the moderate and aggressive allocation fund within the same fund family. You'll see that the conservative allocation fund is down 8.07%, the moderate is down 7.92% here, and the aggressive is leading the way down at 7.84%. This is in spite of a lot of volatility with equities.
What we know is that bonds have always and will continue to have an inverse relationship with interest rates. In other words, when interest rates are rising like they are now, bond prices will fall. We do expect this to continue.
What is concerning about this is a lot of you, some without knowing it, have a significant allocation to bonds if you're in conservative allocation funds or portfolios. You may be in a conservative allocation fund at your 401(K) or you may even have a target-date fund; if it is near term, it is going to have a pretty significant allocation to bonds as well.
If you have any questions about any of this, we would love to hear from you. If you have any other questions for us about your portfolio, financial situation, or retirement, please feel free to reach out or visit www.wealthep.com. Otherwise, stay tuned for our next Market Minute!
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