Author: Ken

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The Importance of Financial Planning

This lull in market volatility provides a good opportunity to step back and look at the bigger picture…. the importance of a financial plan.

There are so many important financial decisions and questions that can be shaped and answered by a robust plan. It does far more than simply helping determine if you’ll be able to retire when you want and how you want.

But, today, let me focus on just one interesting example of how a robust plan can help you make better investment decisions and increase your probability of remaining financially independent in a variety of market environments. Continue reading “The Importance of Financial Planning”

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Bonds, Part 2: Corporate Debt Fundamentals Worsening

A couple days ago I emailed a commentary about how I’m managing clients’ bond sleeves. As a brief refresher, I’m avoiding high yield / junk bonds and over-weighting Treasury bonds relative to investment-grade corporate bonds. That commentary was very high level focused on the historical performance of each segment during times of economic and market stress. Today, I’m going to get a little deeper into the weeds.

Executive Summary:

  1. The credit quality of the investment-grade bond market is deteriorating
  2. Corporations have been piling on debt so leverage is at all-time highs
  3. High yield bond prices beginning to roll over

Continue reading “Bonds, Part 2: Corporate Debt Fundamentals Worsening”

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How I’m Managing Bond Investments At This Stage in the Cycle

As discussed at length, I have significant concerns about U.S. stock market valuations and what that may portend for the next bear market. After all, the most reliable valuation metrics are indicating the U.S. stock market is more expensive than ever before (including 1929 and 2000).

Although valuations aren’t useful for short-term trading, valuations do provide insight into the potential severity of the next downturn. So whether the next bear market has already kicked off with the January 26th peak or starts 12 months from now, the key to understand is it will likely be commensurate with the extremity of current valuations (i.e. severe).

A couple proactive approaches I’ve offered for consideration to preserve financial independence is either (1) under-weight U.S. stocks in favor of other asset classes, including bonds, and/or (2) incorporate “put options” to insulate portfolios from a significant stock market decline. Today, I’ll focus on what I’m doing within the bond sleeve of portfolios I manage. Continue reading “How I’m Managing Bond Investments At This Stage in the Cycle”