Yield Hunters Have Three Options
The traditional “60/40” portfolio of stocks and bonds can be saved with a few modest tweaks.
Boosting returns with bonds is hard, but can be done.
Photographer: Bloomberg
With the U.S. election (mostly) over, a divided government ahead and an effective Covid-19 vaccine on the way, the recent focus of investors has been on equities. It’s easy to see why: The S&P 500 Index has soared 9.64% this month to a new record. But investors would be wrong to overlook the fixed-income portion of their portfolios at this time. Returns from bonds are very likely to be lower over the next decade than they were over the last. Worse, there’s not a whole lot investors can do about it.
So let’s talk bonds. Fixed-income assets have been in a secular bull market ever since then Federal Reserve Chairman Paul Volcker raised the federal funds rate to 20% in June 1981. That move caused a recession, but crushed inflation and set up a bull market in stocks that lasted from 1982 to 2000. During the four decades since, bond yields have steadily fallen, dropping to almost nothing for benchmark government securities.