Bonds Are Finally Doing Their Job

2022 was one of the most difficult years for diversified portfolios because both stocks and bonds sold off significantly.

The 2022 bear market was very concerning for investors since it reduced the benefits of being diversified in the first place. However, it’s important to note that bonds often protect in a down market. In fact, in all but three years when stocks (S&P 500) were down, bonds (5-year treasuries) were up. 2022 was one of those three years—and the worst one at that.

Source: A Wealth of Common Sense

Coming out of 2022, many wondered whether the inverse correlation between stocks and bonds was permanently broken. However, the past few weeks have shown promising signs that bonds are again doing what they typically do: providing a buffer in a down market.

No asset allocation perfectly hedges your portfolio in all market environments. However, using the weighty evidence of history, it’s important to allocate to asset classes that will be in favor at different times. Currently, bonds as an asset class seem to be carrying their weight.

Happy Planning,

Alex

This blog post is not advice. Please read disclaimers.