Transcript
Hello, everybody, welcome to Wednesday, the S&P 500 was up a grand total of .1%. Today, not a whole lot going on, although we did have some pieces doing quite well with clean energy and online retail majority of which were over 1%. Today, again, you know, not bad for a day where the markets up only .1. Here’s a couple of things that I think we should be talking about going forward just in terms of what’s happening. One thing to consider here, something we don’t talk about very often, and that is really kind of the bond market. And, you know, one of the things that happens when rates come down, bond values go up. And so that’s great. And we saw that happen. And the reason is because an older bond that was paying more becomes worth more. And that actually brings the yield down to kind of current numbers. And one of the problems we’re facing right now is that rates are very low. And so how much more can bonds go up, even in a downturn that we might have, you know, in the stock market downturn, and so they’re kind of compressed, there’s just not a lot more room to move there. And so what do you do in this particular environment?
Well, there’s a couple things that you can do, I think that do help number one is just kind of that little bit of the high-yield bonds. So high-yield bonds, in my opinion, are kind of a cross between a stock and a and a bond. They, they basically move quite a bit with the stock market, but they pay a very nice dividend yield, and in economic recovery times they can do quite well, which is what’s been happening, you know, as the economy has recovered here. And this new stimulus that they’re talking about, I think, should help high-yield bonds. They’re more aggressive. So you have to be more careful, especially if you’re looking at, you know, more conservative portfolio. And so that’s why we kind of put in Stop Losses quite tight against the high-yield bonds. Again, we want to make sure that they don’t run away from us as far as that goes. But as long as they stay above those Stop Losses, we continue to make money.
The other aspect to take a look at is what’s called a TIPS. It’s a treasury, insured Treasury Inflation Protected Security, sorry. And so what happens are, these are treasury bonds, they’re specially designed to essentially pay more when interest rates go up. And so that’s a great way of kind of hedging, what happens normally, when rates go up, his bond values go down, just the opposite of what happens on the other direction. So these are designed to be more robust, in an upward environment for interest rates, which I think is probably where we should be heading here. Again, because we are so low, we have seen, you know, the 10-year Treasury go from .7, up to 1.1%, give or take, and you know, so there are some increasing interest rates, which again, bring down the value of the bonds. Overall, the bond market is down year to date. And so it’s one of those things where, you know, for me, I’ve gotten a lot of portfolios with a lot of bonds, and we do 10 different, you know, risk levels at 10%. Stock 20, 30, 40. Obviously, if I’m in a 20%, stock portfolio, it means 80% in bonds.
And so how do you make that work? And how do you kind of outperform that and I do think that these Treasury Inflation Protected Securities that we’ve been buying, you know, quite a bit lately, and some of the high yield bonds, as well as these broad market bonds, that we, you know, kind of buy the whole market, as far as that goes. So, I do think bonds are a really important piece, they are the parachute of the portfolio. And so being able to have that in place, offset some of the risk of the stock market. My concern going forward here is just making sure that we manage those properly. So that we don’t end up with, you know, a lot of problems if inflation does come back, you know, with with some vigor at some point in time.
So, just something we’re watching for, again, you know, we have a lot of money in that particular area, too, and so to you as clients. So that’s my main message today, I do think that you know, the stimulus program that they’re talking about, it’s going to get through, I think that’s going to continue to push the stock market, I can see some of the trends that are happening. I talked about 3-D printing yesterday, it did really well today, for example. So, you know, the good things are happening in that side, I don’t see huge issues there. We’re gonna have volatility that’s a given, especially at these levels, but the bond portion is something to, you know, make sure we pay attention to also. And so that’s where we’ve been making some of those adjustments. So I hope everything is going well for you and I look forward to talking to you tomorrow. Thank you very much.