Are Bonds Dead? Do Equities Rule?

When investing equities (stocks and shares) are where the growth comes from. Fixed interest / bonds are supposed to be the stabilising part of your portfolio, the bit that keeps your investments from plummeting when markets fall.

So what on earth has happened?!

Bonds have taken a massive tumble and some lower risk investors have found their investments have dropped more than some high risk investors. How has this happened and should we be re-evaluating their place in our portfolios?

I spent last Thursday in London at the Humans Under Management Conference. We don’t just manage finances, we manage humans and their behaviours and how they deal with money.

One financial planner got up and told us that bonds had no place in our client portfolios and their annual returns have been sh*te!! We have been taught to use bonds to diversify with equities and that is what fund managers do who look after millions and millions of £, but now bonds have low returns and their values have dropped like stones. So what should we do?

Sell all of your bonds / fixed interest?! 

This financial planner tells his clients that every 6 years or so there will be a temporary financial drop, but it will recover, so be prepared for those drops by having two years of expenditure in premium bonds (stop smirking Karen – you’ll know what I mean if you’ve read my previous blog on our premium bond joust!) and then the rest of your money should be in equities. No bonds!! No fixed interest!!

Did you know that Apple has just issued lots of corporate bonds to raise money. What have they done with this money you ask? They have used it to buy back loads of their shares as they think their shares will do super well and so they want them back. They are borrowing money to buy shares!!

Own assets, not debts.

So what does this mean for our traditional risk portfolios of different amounts of assets in equities and fixed interest? Well, they’re all gone and there is now only one.

All equities!!

If you know me, this meets my attitude to risk as I’m all in, but how does this sit with the “normal” client?

I’m not yet convinced by this approach, but I’m about to embark on some fun research to see what it is all about.

 

Let’s see what I discover and whether we agree that bonds are really dead . . .