One major theme last quarter was the fixed income markets, the so called “safe stuff” bore the brunt of the damage. The era of “free money”, at least from the cost perspective, is over. Interest rates (the actual cost of money) are up and by a lot. At least in proportionate terms. As we wrote about ad nauseum, it had to happen as the Covid stimulus and financial backstopping went away. Quantitative easing must be unwound, and consumer friendly interest rates must go up. The Fed’s actions during Covid are no longer appropriate today. The 10-year treasury (and often quoted baseline index) started the year at 1.5 percent and as of 3/28 stood around 2.5 percent. Doesn’t sound like all that much until you realize that’s a 2/3 jump. Ballpark, that’s about a 7 percent decline in the bond market index. If you got cute and chased yield, your declines were twice that. If you did the right things and were defensive, you were down around 4 percent. In historical perspective, the declines were among the worst in the past 30 years. On the bright side, the declines are leading to increased yield so your income from those fixed income instruments will be higher going forward.
Looking back, and looking ahead, the past quarter has reinforced the old notions of risk tolerance, portfolio allocation, diversifications, and having a plan. Especially in the era of 24-hour news and overall sensationalism. What looked easy in 2021 has turned, and the risk side of “risk-return” is front and center. We feel pretty good about how we did and how our portfolios held up along the way. But and this is the big but, if you are not of the same mind we need to talk. As we mention over and over, you and you alone are the arbiter of your risk tolerance, and our goal is to work with that. Easier to make adjustments during calm than crises.
Looking ahead, starting to feel like more investment opportunity is showing up. Our long-term clients have been through it before. Down markets are a part of investing and dealing with both is equally important. From the wreckage comes the new potential. Not calling a turnaround or a new bull market but do like the bargains appearing. For now, we are still “neutral” in our outlook but a little more encouraged. Thanks for listening and, as always, don’t hesitate to reach out for any reason.