Transcript:
Tom Vaughan:
So you’ve we’ve talked about the stock portion of the portfolio. What are you doing for the bond side of the portfolio? Yeah, that’s a good question. I apologize for not talking more about the bond side of the portfolio, because it is a big piece. We have clients that have as much as 80% and 90%, and the bonds and only 10 or 20 in the stock, we tend to talk about stock market all the time, just because it’s, it’s more there’s more motion there. And there’s more happening. But overall, the bond market this year has been pretty brutal, compared to previous years. I think last last show, we had a question about kind of the parachutes, and the bond portion supposed to be a parachute. On that last show, I think at that time, the total stock market index with Vanguard was down about 16 17%, in the total bond market index with Vanguard was down about 12%. So that’s a pretty big number for the bond market.
Usually, you’d like to see it going up, when rates are going when when the stock market’s going down. And that’s not happening right now, because bonds go the opposite direction of interest rates. When they’re raising rates like they’re doing now, and these big numbers are talking about, the bond market starts to come down. So we’ve done the same thing on the bond side, that we’ve done on the stock side, we’ve reduced our exposure to the overall bond market, and put the money in T bills and ultra short term bonds that are more stable, and don’t move really at that much at all.
If anything, they may move up a little bit in this type of environment. So we’re we’ve reduced about 75 to 90% of our exposure to the bond market, which is more than we’ve reduced on the stock side, mainly because the people that are heavily into bonds are more conservative than the people that are heavily into our stocks within our practice. We tend to be a bit more cautious there. I wish we had done something earlier. You kind of have to hang in there until you start to see more and more degradation to kind of prove where this market might go. Because otherwise you get out and it just jumps right back up. And you lose by not being in and we’re much more satisfied to be buy and hold. Believe me. I know, it doesn’t seem like that recently, but this is a pretty unique situation. So So anyway, to answer the question, we’ve made changes, we will continue to move out of the bond market if it continues to deteriorate. But bonds will bottom before stocks historically. One of the things to keep in mind when they raise rates, bonds pay more, the problem is when they’re raising rates, the value drops faster than the increase in the income.
Eventually, when rates stabilize even a little bit, the value of the bonds will stabilize also, and now you’re getting paid more. You can go from getting paid basically nothing for because rates are so low, to now getting paid three to five 6% or whatever it might be once things stabilize. There will be some opportunities here to come back in and buy bonds, I think at a good price and the good yield, and then maybe benefit from that. And if the Federal Reserve does have to stop raising rates or even slow down raising rates would be a start, or, or ultimately maybe start decreasing rates to support the economy that starts to slow down too much. If that happens, then bonds would come up in value as well as pay that higher yield. There is some good opportunities here. But in the interim, we have kind of set some of that aside, and we’re just you gotta have something to use if the markets do go down further to come back in at that point in time. So that’s what we’re doing the same thing on the bond side as we are on the stock side.