What a week it has been culminating with the largest bank failure since 2008 (Silicon Valley Bank). I’ll write a special commentary on that in the coming week as I’m sure there are some questions.
Today, I just wanted to point out why we own Treasuries of varying maturities. They certainly haven’t been the greatest investment for the last few years as the Fed has been raising interest rates, but they are in portfolios to serve a specific purpose over the course of a full market cycle. And, as an aside, now they actually offer some attractive yields that they haven’t offered in about 15 years.
Treasuries tend to benefit from a flight to safety when investors and speculators get concerned about recession, deflation, and other systemic issues. It also seems, due to the SVB failure, the market is pricing in lower and fewer rate hikes than they were a week ago thereby pushing bond prices up again.
Now, Treasuries did not do their job last year as they were down simultaneously with stocks at precisely the time you’d want/expect them to be up. However, as I mentioned previously, that was only about the fourth or fifth year in the last 100 years where both 10-year Treasuries AND U.S. stocks were down simultaneously in the same calendar year. There was no reason to abandon a time-tested approach because of a one year deviation.
Well, this last week we started to see, once again, the benefit of complimenting stocks with historically safe assets (Treasuries) as the global stock market was down about 4.3% on the week and Treasuries (as measured by IEF) were up about 2.3% for over a 6.5% spread in a week’s time.
This is why we construct portfolios with non/low-correlated assets. We can greatly reduce volatility of portfolio values even if there is significant volatility in broader markets.
This thoughtful approach to portfolio construction can potentially improve our long-term returns, ease our minds so that we can remain committed to our strategy throughout the market cycle preventing emotional decision-making that tends to destroy the average investor’s long-term returns and, ultimately, improve the probability of achieving our most important financial objectives.
Disclosures:
Past performance is no guarantee of future results. All investments maintain risk of loss in addition to gain.
Data from third-parties is believed to be reliable but accuracy is not guaranteed. Much of the data used to interpret the markets and forecast returns are often at odds with each other and can result in different conclusions. Many different factors impact prices including factors not mentioned here.
This is not investment advice but merely a general commentary. Individualized investment advice cannot be provided until a thorough review of your unique circumstances and financial goals is completed.
Views provided here are current only as of the moment of posting and are subject to change at any time without notification.
