07 May Bonds and Medication – Conditional Responses
By: Tony Christensen
Over the past couple months, my family has been plagued with sickness. It started with my kids, worked its way to me, then finally moved on to my wife. Unfortunately, each of us a had a different illness but my wife had the worst one- mono! It has been fascinating to hear those around us diagnose our problems and offer suggestions of how to relieve our pains. Although not everyone has offered the same advice, the majority have had the same theme, “take medication!”
THE ANSWER IS ALWAYS MEDS
Our society has been conditioned to think that medication is the answer to most health problems. As a general rule, our friends and family hear our complaints and offer their medicated remedies to relieve our symptoms. Is medication really the answer the majority of the time? Are there alternatives that can resolve our pains without the use of such methods?
MEDS AND BONDS
This may sound crazy, but this is very similar to holding individual bonds in your investment portfolio allocation. The financial world has been conditioned to view investment allocation under the parameters of how much stock versus bonds one should hold. Not all bonds are created equal. But as a general rule, they may carry specific downside risk associated with the current economic environment. Bonds face the risk associated with rising interest rates and municipal bonds have the additional risk of tax plan changes. The year prior to the 2016 Presidential election, municipal bonds were attractive. The thought process was if Hillary had been elected, taxes would go up. Therefore, having tax free income generated by municipal bonds would be in higher demand. When Trump was elected, just the opposite happened.
BONDS IN THE ELECTION
The masses now believed taxes would decrease and we had three ¼ point interest rate hikes announced for 2017. The Trump effect, plus rising interest rates, as well as supply and demand factors all contributed to the weaker performance in the bond market, since Trump was elected. Please don’t mistake this article for advice that you should abandon bonds or avoid medication! We have plenty of clients that hold bonds in their portfolios. And, even I subscribe to medication when necessary! My purpose in writing this is to make you aware that just because you are a certain age and have a certain risk tolerance, does not mean you should hold “X” percent in bonds, like you may have been conditioned to think.
If people fully understood the risks associated with the bonds, would they still want a traditional bond allocation in their portfolio? Is there an alternative approach? As you enter this new political and economic environment, acquire good advice, and know what you have.
Investment advisory services are offered through BCJ Capital Management, LLC., an SEC Registered Investment Adviser.
Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed, and past performance is no guarantee of future results. For specific tax advice on any strategy, consult with a qualified tax professional before implementing any strategy discussed herein. BCJ 17-426