{"id":14267,"date":"2023-08-24T18:37:40","date_gmt":"2023-08-24T18:37:40","guid":{"rendered":"https:\/\/isafespend.com\/investing\/time-to-favor-bonds-over-stocks-now\/"},"modified":"2023-08-24T18:37:41","modified_gmt":"2023-08-24T18:37:41","slug":"time-to-favor-bonds-over-stocks-now","status":"publish","type":"post","link":"https:\/\/isafespend.com\/?p=14267","title":{"rendered":"Time To Favor Bonds Over Stocks Now"},"content":{"rendered":"
\n

Three years ago, I wrote to you from the La-Z-Boy in my kids\u2019 room. Which wasn\u2019t unusual. We were all<\/em> stuck at home staring at whatever immediate family we were sheltered in place with. It was April 3, 2020.<\/p>\n

Six packs in a stroller? The norm. What was<\/em> unusual was the content of the note I penned to you before<\/em> the big walk. Favor Stocks Over Bonds<\/em> was the topic, strange coming from a guy who writes about bonds for a living. But heck, it was pointless to sugarcoat the case:<\/p>\n

It\u2019s pointless to put new money into bonds right now.<\/em><\/p>\n

Was it ever! The 10-year Treasury yielded just 0.62%. Zero-point-six-two!<\/p>\n

Plop a million bucks into T-Bills, and we were collecting a mere $6,200 per year. Just over $500 per month. On a million<\/em>!<\/p>\n

Investment grade fixed income paid a bit more. But we smartly avoided those yield traps, too:<\/p>\n

<\/fbs-ad><\/p>\n

Problem is, it\u2019s tough to make a living collecting 1% or 2%. Sure, you could argue that you \u201cwin\u201d when yields compress even more, as bond prices rise when yields fall. But c\u2019mon, that game has almost played out.<\/p>\n

Why had the game played out? Inflation would soon become an issue:<\/p>\n

With Congress and the Federal Reserve each tossing around trillions<\/em> of dollars at a time, you\u2019d have to offer me an insanely high yield to get me into anything \u201cfixed\u201d for five, ten or (god forbid) thirty years. There\u2019s only so many trillions you can toss around before inflation, eventually, becomes a potential issue.<\/p>\n

Stocks would benefit from the money printing. Bonds (via the return of inflation) would not. So, we had an obvious trade to start the decade. Buy stocks, not bonds.<\/p>\n

We should have started a hedge fund and called Michael Lewis to document our simple slam dunk trade! Stocks and two flavors of bonds (investment grade and Treasuries) have done exactly as predicted since then:<\/p>\n

Not bad! Our buy recommendation\u2014stocks, measured by the vanilla S&P 500\u2014returned 85% (including dividends). Our funds to avoid, meanwhile, lost<\/em> 11% and 41%.<\/p>\n

\u201cSafe\u201d bond funds like iShares Aggregate Bond ETF (AGG)<\/strong> and iShares 20+ Year Treasury Bond ETF (TLT)<\/strong> paid their pittance just fine. Their yields even went up<\/em> in the three subsequent years! However their portfolios were revalued lower and much<\/em> lower as rates rose.<\/p>\n

That\u2019s the problem with fixed income. It\u2019s great when rates are trending down. But a complete disaster<\/em> when rates rise.<\/p>\n

Ironically, income investors tend to fall in love with bonds at exactly the wrong moments. Back in April 2020, Treasuries were safe while stocks were uncertain. The herd clamored for bonds and shunned equities at exactly<\/em> the wrong moment.<\/p>\n

Fast-forward to August 2023, and we have the opposite setup. Investors want nothing<\/em> to do with bonds. After all, supposedly secure TLT is down 41% in three years!<\/p>\n

Meanwhile, stocks are back. The S&P 500 cleared important \u201csupport levels\u201d recently. Whatever that means. It\u2019s a hoot when advisors declare stocks \u201csafe again\u201d after a 20% rally. Where were these bullish calls last October?<\/p>\n

Up 85% from my pandemic La-Z-Boy missive, I\u2019m closing out that \u201ctrade of the decade\u201d for a new one. Stocks are pricey and popular. Bonds are cheap and hated.<\/p>\n

Which in Bondland brings an added bonus. Real yields!<\/em><\/p>\n

From those sad 0.6% levels, 10-year Treasury yields have soared seven-fold to 4.2%. Now we\u2019re talking. We\u2019re at $42,000 on a million-dollar portfolio. More than halfway to our (admittedly lofty) 8% yield goals.<\/p>\n

Granted, 8% doesn\u2019t come easily. It requires research and courage to collect 8% and make sure that principal stays intact. We\u2019re not looking for a \u201cTLT since April 2020\u201d type of paper tiger performance.<\/p>\n

Speaking of which, TLT is sinking once again<\/em> towards its fall 2022 lows. We called a bottom here in the pages of Contrarian Outlook, and TLT responded with nifty 9%+ returns in just three weeks. Even Bloomberg hopped on our \u201cbond bounce\u201d bandwagon!<\/p>\n

When history rhymes, remember you heard it here first. And heck, if you can\u2019t recall, just jot down our new big picture trade:<\/p>\n

Favor bonds\u2014and \u201cbond proxies\u201d over stocks right now.<\/em><\/p>\n

Brett Owens is chief investment strategist for <\/em>Contrarian Outlook<\/em>. For more great income ideas, get your free copy his latest special report: <\/em>Your Early Retirement Portfolio: Huge Dividends\u2014Every Month\u2014Forever.<\/p>\n

Disclosure: none<\/em><\/p>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Three years ago, I wrote to you from the La-Z-Boy in my kids\u2019 room. Which wasn\u2019t unusual. We were all stuck at home staring at whatever immediate family we were sheltered in place with. It was April 3, 2020. Six packs in a stroller? The norm. What was unusual was the content of the note<\/p>\n","protected":false},"author":1,"featured_media":14268,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[49],"tags":[],"class_list":{"0":"post-14267","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-investing"},"yoast_head":"\nTime To Favor Bonds Over Stocks Now | iSafeSpend<\/title>\n<meta name=\"description\" content=\"Three years ago, I wrote to you from the La-Z-Boy in my kids\u2019 room. Which wasn\u2019t unusual. 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