Should I Still Own Bonds? A Major Decision for Retirees

Bonds, known for stability, decreased -1.54% in 2021 and have started 2022 with the same downward trend. Considering high inflation, real returns are significantly negative. Should I still be investing in bonds?

Investing in Bonds

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Anthony Saffer & Alex Okugawa

Alex Okugawa 0:00
Inflation is sky-high interest rates are low and real returns on bonds have been trending downward. Should you continue to hold bonds in your portfolio? Stay tuned.

Okay, Anthony with again, interest rates being so low inflation being high real returns on bonds have been trending negative, I think it has a lot of people, at least, that are paying attention to this stuff, you know, are bonds still worth investing in? Should I still consider them? What are the traditional use cases for bonds,

Anthony Saffer 0:34
Typically, investors want to hold bonds for stability, because they’re a good offset with stocks, and then to provide income, right? And so even if it’s not from the actual interest yield from bonds, because it’s so low, right now, still having that stability, to be able to sell bonds and produce the right amount of income is helpful.

Alex Okugawa 0:54
Now, again, I think, Ben Carlson, what he’s written, we like that it’s, you know, a bad day in stocks is like a bad year in bonds. So like the two are so different in bonds provide that stability that a lot of people need, right.

Anthony Saffer 1:09
And that’s why still owning bonds can be worth it, especially when you’re offsetting that you’re coordinating that with the stock portfolio.

Alex Okugawa 1:16
Now, you’ve written a post, again, a few A while ago you know, our bonds are still worth investing in which we will post because this can get a little nuance, right? How you want to be thoughtfully allocating to bonds, the type of bonds, because there’s a wide gamut of bonds that you can invest in, etc. So here’s another question, though, is the current environment that we’re in the right, low-interest rates, high inflation? Is this common? Have we seen this stuff before? Or is this more of an outlier meeting? Is this time truly different? Right? Well,

Anthony Saffer 1:43
First, let’s address the negative returns. Because we look at 2021. I mean, bonds were down a percent and a half, when you just look at just the overall bond market. Okay. Now, as he said, there’s lots of nuance to that. If you go into US Treasury bonds, it was down about four and a half percent, which is, you know, meaningful, especially if inflation is up around six or 7%. So the real returns are low. To answer the question, though, is it different just from a return standpoint? The answer’s no. I mean, I pulled out some statistics here, if you look at US Treasury bonds, very recently in 2013, down 9.1%. Okay. 2009, down 11.1%. In 1999, down 8% 94, down 8%. So compare that to down 4%. Yeah, I mean, it’s not very different when you compare it to those recent years.

Alex Okugawa 2:31
Now, again, it’s not completely different. But there are some subtle differences such as the trend

Anthony Saffer 2:36
That’s right, yeah, so let me show that. And this is where things may be different, right? Or at least, you know, from a recent standpoint, if you go back to the early 80s. Okay, we were really in four decades of downward trending interest rates. So what does that mean? It means that as interest rates are coming down, it helps bonds appreciate.

Alex Okugawa 2:53
Because bonds and interest rates are a bit like a teeter-totter, right? If you get that in your mind, right? As interest rates go up, returns on bonds typically go down and vice versa,

Anthony Saffer 3:02
So we may be heading towards an environment more like the 50s and 60s, where interest rates are going up, and there puts downward pressure on bonds. So that’s the real question is, are we in an upward trend here? That we don’t know, we’re in a very low environment. People have also been saying that for a while, like, Oh, we’re going to you know, hit upon interest rates hasn’t happened, except very recently.

Alex Okugawa 3:26
Now, it’s, again, it’s one thing to look at this very rationally look at a long term chart and say, Oh, well, you know, see here, this is how things played out. I’m a retiree or I’m nearing retirement, this is all great and dandy, but what should we do about this? Yeah, and

Anthony Saffer 3:41
It is worth asking those questions. So I’d say number one is to consider your risk tolerance. So there are people that are out there going, well, I don’t want to own bonds, because they’re going down, and stocks are going up. And so, therefore, I’m going to sell my bonds and put them in stocks. But that’s opening up a whole new set of risks. Yeah, a lot of risks. Right? So you have to consider what you’re going from and why you’re going into and why you know, your objective of owning bonds in the first place. Number two is that you want to coordinate your investment plan with your financial plan. You know, we’re bonds are there for stability, even if they’re going down, it’s usually not quite as much right as stocks.

Alex Okugawa 4:15
And mathematically over time, we expect bonds to outperform cash.

Anthony Saffer 4:20
Yeah, they should. Right. And it may be a hard go of it in the meantime. But yeah, if you go to cash two, you’re not earning anything. So aligning your investment plan with your financial plan. And then thirdly, is consider making minor adjustments as opposed to wholesale changes. Sometimes people think, well, if I need to make a change, I need to do all or nothing. And that’s rarely the case. You know, if you don’t want to own as many bonds, that’s fine. But just consider further diversification. Maybe not get out of that. And that’s where people have to look at their situation and hopefully go through that with their finances.

Alex Okugawa 4:52
I mean, again, the really big thing you said here is don’t make these big wholesale changes because ultimately, that’s how people blow themselves up. And their retirement right? So again, if you enjoyed this video please like and share so other people can see this right? We want people to have a successful retirement and part of that is navigating these different portfolio components right? How much do I have in bonds? How much do I have in stocks? What’s the right mix for me for my financial plan is to make sure that I can have enough investment growth to continue my lifestyle. If you’d like to learn more, visit our website or give us a call. We’d love to talk with you

This does not constitute an investment recommendation. Investing involves risk. Past performance is no guarantee of future results. Consult your financial advisor for what is appropriate for you. See our website at for full disclosures.

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