This week, I’m talking about the top investment news stories of 2019 and what lessons you and I can learn from them.
Today, I’m talking about your bond portfolio and what you should do with it after 3 interest rate cuts in 2019. If you own bonds (and if you’re over 50, you definitely should own some bonds in your portfolio), 3 rate cuts by the Federal Reserve means that interest rates and yields on everything from your savings account interest to mortgage rates is lower today than it was in 2019.
In fact, interest rates dropped so much in 2019 that bond portfolio returns - which move in the opposite direction as interest rates - were up big, at least for bonds in 2019. In fact, even with stocks getting all the attention in 2019, the bond market posted an 8.8% gain in 2019 – a fantastic return for bonds! The bond market returns have been driven primarily by lower interest rates, and with the Fed now on pause with interest rate cuts, you can probably expect more stable yields and lower returns for bonds in 2020.
So here’s what I recommend for 2020 when it comes to your bond portfolio:
First of all, interest rates are hard to predict, so don’t make strong bets on how you invest your bond portfolio based on the current environment of low but stable rates. They could go up at anytime, and it’s impossible to know when that will happen.
Secondly, I think it makes a lot of sense to keep your bond maturities shorter right now, since you’re really not rewarded for buying bonds that mature in 10 years compared to bonds that mature in 2 or 3 years. With interest rates low, the risk is that rates will move up, and that is likely to hurt long-term bonds more than short-term bonds. So I like shorter term bonds where you can get comparable income with less risk.
That’s it for today. Thanks for listening. Tomorrow, we’re going to recap the week and I’m going to give you a little preview of next week’s theme.
My name is Ashley Micciche and this is the One Minute Retirement Tip.
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