Do you know how your bond portfolio should perform under different market scenarios?

Bonds are an important part of your overall investment portfolio. Their intended purpose is to smooth out your returns by exhibiting non-correlative behavior with stocks (provided you have chosen a high quality bond portfolio). However, is that always the case and how should you expect your bonds to act under Federal Reserve tightening or Federal Reserve loosening policy environments? Here are two different scenarios and how they may affect your bond holdings:

• What happens if the Fed lowers interest rates

  • cash holdings will suffer in a rate lowering environment while bond prices will rise, with the longest duration bonds seeing the largest increases.

• What happens if the Fed increases interest rates

  • cash holdings will benefit from a rising rate environment;

  • bond funds, while initially falling in value, will eventually reward bond investors with higher yields; and

  • lower quality bonds and bonds with a longer duration will likely suffer greater losses.

If you have questions about what role bonds should play in your portfolio, please feel free to contact Intelligent Investing at www.mynmfp.com/new-clients for a no-obligation consultation.

For more information about bond funds, see my earlier post here.

For additional information about this topic, please click on the title above.

Are Target Date funds OK?

Lifecycle, all-in-one, and “set-it and forget-it” are all common names for Target Date funds (an investment vehicle usually comprised of a fund of funds invested in stocks, bonds, and cash, whose percentages of each dynamically vary as you approach your intended retirement age). When investing in these Target Date funds, an investor typically chooses the fund with the name closest to the date they plan to retire. For example, if you are a 45 year old and plan to retire at 65, you would choose a Target Date fund with a date close to 20 years in the future.

The fact that these funds provide immediate diversification, semi-appropriate risk allocation, and automatic rebalancing, hearkens to their allure. And investors are putting their money where there desires lay because Target Date fund assets have been increasing rapidly the past ten years. It is hard to say if this is due to the fact that Target Date funds became a Qualified Default Investment Alternative within 401k plans in 2006 for plan fiduciaries, or do investors really crave the simplicity of “set-it and forget-it”? It’s probably a little bit of both.

But back to the question. Are Target Date funds OK? Simply put, YES.

Are Target Date funds infallible, no; but, do their diversification, risk allocation, and rebalancing go a long way to serving a disinterested investor well, YES.

Since you may be considering a Target Date fund if you are reading this post, here are two (2) things to consider when choosing your Target Date fund:

1. Low fees - look for expense ratios/fees below 0.25% or 25 basis points; expense ratios or fees charged by your Target Date fund are insidious headwinds to the overall return of your portfolio, reduce these fees and watch your money grow

2. Glide path - this is the funds gradual shift to a more conservative investment allocation as you approach retirement, e.g., as you approach retirement, most funds dynamically transition to a higher percentage of bonds and cash while reducing the funds stock percentage; a funds glide path is generally designed to reduce investment risk as you approach retirement.

For more information on figuring out if a target date fund is right for you - click here to see an article by Forbes.

If you have questions about whether a Target Date fund is right for you or about your 401k investment options, please feel free to contact Intelligent Investing at www.mynmfp.com/new-clients for a no-obligation consultation.

Ideas of what to do with last year's bonus or your 2019 pay raise . . .

Well, first off, maybe purchase yourself a one-time item that is not that terribly expensive. This helps to get the urge to spend out of your system and also helps to commemorate your achievement, i.e., the reason of your bonus or pay raise. It sounds kind of silly, but I used to purchase a painting or something that I needed for my office to make it more comfortable, e.g., a couch. You spend eight hours a day there, so you might as well enjoy it :-).

Once you’ve gotten that out of your system, it’s time to really decide what to do with the bulk of your windfall. Initially, it is very important to sock away 80% or more of this additional income. Don’t let the additional income lead to lifestyle creep, as can easily happen. Once you’ve cleared this hurdle, you can begin considering the following options:

• If you don’t have an emergency fund, start one, now! (try to set aside at least 6-12 months of household expenses in a savings account);

• Pay off any outstanding debts - focus on high interest debt first and move your way down til you are debt free; or

• Open or contribute to an IRA or a Taxable Investment Account - the earlier you start saving for retirement, the harder your money will work for you (noting compound interest is your friend).

If you have questions about how to best utilize your bonus or new pay raise, please feel free to contact Intelligent Investing at www.mynmfp.com/new-clients.

When the “free” dinner is not so free. Annuities…are they worth it?

For a select few (read as for not that many people), annuities can make some sense. For example, if you need an immediate annuity to help cover your basic living expenses and you are not comfortable with managing your own money, then (maybe) an immediate annuity should be considered. However, you will pay dearly for this consideration and perceived need.

Unfortunately (for investors), immediate annuities are not the only annuities being pushed at “free” dinners. With “free” dinners, investors usually see the more complex variety of annuities rolled out, e.g., variable and indexed annuities. Make no mistake, the folks putting on these “free” dinners are looking to sell something to you - something (read as variable and indexed annuities) they may not even fully understand themselves. It should go without being said that one should never purchase (nor sell) that which they do not understand.

And unfortunately, some of these variable and indexed annuity insurance policies can carry large sales incentives for the person “storyselling” you their product. Sometimes a commission or fee of 5% to 6% of the contract price. So if you purchase a quarter-million dollar ($250,000) variable annuity contract from a salesman, that salesman may stand to walk away with $15,000 of your money as soon as he cashes your check. That’s a pretty hefty fee for doing very little work. These kind of salesman incentives draw into question whose best interest is being served in these transactions. As such, my suggestion is, leave your checkbook at home.

That being said, here are some pros and cons of annuities:

Pros:

• A near guaranteed future income stream

• Permits additional savings for high-income earners

• Certain annuities can protect against loss of principal (but you will pay a hefty fee/charge for this protection)

Cons:

• Annual Fees of 1.25% of your total assets

• Surrender charges that can equal 10% of your assets if you cancel the annuity within the first 7-10 years of the contract

• High fees and commissions

• Insurance account riders that can be 1% to 1.5% of your account value each year

• Limited Investment options with high expense ratios

If you are thinking about an annuity, please feel free to contact Intelligent Investing at www.mynmfp.com/new-clients. Please note, Intelligent Investing does not sell annuities or any products, nor do we receive commissions for the sale of any products. We only provide unbiased fiduciary level service to our clients.

For more information about this topic, please click on the title above.

Have you done your annual portfolio check?

It’s always a smart idea to check-up on your retirement plan, at least, annually. In this post, we are going to keep the annual check-up simple, i.e., keep it to four (4) main ideas. Although these four (4) main ideas are not the only factors to keep track of when monitoring your retirement plan, they are a good start that will heed you well if done.

Check-up #1) Is my portfolio on target? If you are in the accumulation phase, are you contributing 15% or more of your annual gross income? This rough metric is a good place to start. Notably, if you are a high-earner, you need to be contributing 20% or more of your annual income as Social Security will replace a smaller portion of your retirement “paycheck.” If you are already retired, is your total amount withdrawn from all retirement accounts in line with the often cited 4% withdrawal rule (adjusted for inflation annually thereafter)? If not, you may need to actively adjust your withdrawal rate to better match the IRS suggested withdrawal rates.

Check-up #2) Is my asset allocation OK? With this 10 year bull market, many portfolios are off-kilter. The 10 year run of the stock market has left many portfolios stock heavy. If you are a twenty-something than this high equity/stock exposure is probably OK. However, if you are nearing retirement or in retirement, you need to make sure your stock/bond/cash allocation is appropriate, not only for your age but your risk tolerance, as well. If you are not sure of an appropriate stock/bond/cash allocation for your age, you can just mirror the asset allocation of a life-cycle or target date fund by Vanguard. A good place to start is the old saw of subtract your age from 110 and that is how much you should have in stock. For example, a sixty (60) year old may have 50% of their portfolio in stock (110 minus 60). The remaining 50% of their portfolio would be divided among bonds and cash.

Check-up #3) Do I have enough cash? If you are still working, six (6) months to fifteen (15) months of cash should be enough to weather you through any layoffs or emergency fund needs. The higher your income, the closer you should be to fifteen (15) months of cash on hand. If you are retired, I recommend two (2) to three (3) years worth of living expenses in cash, so you minimize your chances of having to sell stock in a down market.

Check-up #4) There are only two certain things in life: death and taxes. If you are still working, make sure you max out your retirement contributions to your tax-sheltered accounts. 2019 contributions have increased to $19,000 for your 401k ($25,000 if you are 50 or older) and to $6,000 for your IRA ($7,000 of you are 50 or older). Contributions to these accounts reduce your taxable income. If you are retired, make sure you take your required minimum distributions from your retirement accounts (don’t get caught by the 50% penalty) and possibly use strategic withdrawals to maintain your appropriate asset allocation.

As mentioned above, these are not the only factors to check on when reviewing your portfolio. However, these provide a pretty good starting point. If you should have any questions about your portfolio, feel free to contact Intelligent Investing at www.mynmfp.com/new-clients for a no-obligation consultation.

For additional information about this topic, please click on the title above.

Last minute gift idea for your adult children . . . Pay for a financial plan!

If you are out of gift ideas for your adult children, maybe offering to pay for a meeting with an hourly rate financial planner just might provide the gift that “keeps on giving.” Why? Because some studies show that a comprehensive financial plan can boost your wealth by $234,000 (or more) when done by a financial planner - versus doing it yourself (see AARP The Magazine October/November 2018 issue). That is a pretty significant increase. That is the kind of gift that keeps on giving!

For more information on how financial literacy starts at home - click here to read an article by Vanguard.

If you have questions about how this would work, please feel free to contact Intelligent Investing at www.mynmfp.com/new-clients.

For more information about this topic, click on the title above.

Should I borrow from my 401k? Not if you don't need to . . .

Why? Well, it might be considered a taxable event and, worse yet, it may be subject to a 10% penalty in addition to your normal tax bracket rate. By way of example, if you are in the 22% Federal Tax bracket and fail to pay back $10,000 worth of your loan, you could end up owing $2,200 in Federal Taxes, plus an additional 10% penalty of $1,000 if you are younger than 59.5 years of age. That $3,200 is quite a bit of taxes to owe for access to your money.

Here are some pros/cons of borrowing from your 401k (provided your 401k plan permits loans):

Pros

I pay interest back to myself (and not to a lender);

I have 5 years to pay back the borrowed money (and even longer if borrowed for a home); and

You can borrow up to $50,000 or 50% of your vested account balance.

Cons

My contributions to my 401k plan during my payback period may be limited or not allowed (also, matching employer contributions may be adversely affected as well);

Your 401k account balance will most likely be smaller at retirement; and

Acceleration of your note balance will occur if you quit your job or are laid off during the repayment period.

Sometimes, a loan from your 401k seems like your only option. But, before doing so, you may want to contact a financial planner (www.mynmfp.com/new-clients) to discuss what other options are available, e.g., do you have a Roth account that has been open for more than 5 years? For additional information about this topic, please click on the title above.

Want your child to be a multi-millionaire? Then open a custodial Roth IRA!

Can my child open a retirement account? Well . . ., not exactly. But you can, as their custodian. If you child has earned income for the year, they can contribute the lesser of their earned income or $5,500 in 2018 to a tax-deferred retirement account (the limit is $6,000 in 2019).

By way of example, maybe your child earned money from babysitting, mowing lawns, or from a summer job; if so, they have earned income. This earned income now allows them to make contributions to a retirement plan. And since your child will probably be in a very low tax bracket currently, a Roth IRA is the perfect choice. Remember, with a Roth IRA, the money that goes in is taxed, but your distributions can be tax free if done right.

Let’s say that your child has accumulated about $25,000 in their Roth IRA retirement account by age 21. Well, since Roth IRAs are not subject to Required Minimum Distribution rules, your child will have amassed approximately $800,000 by the time their other accounts are requiring withdrawals (assuming a 7.2% annual return on your money). What makes this even more intoxicating is that your child need not have contributed another dime to their Roth IRA after age 21 to reach this $800,000.

Now, some estimates also show that a child starting at age 15 and contributing the maximum contribution each year to their IRA until age 70 would have amassed almost $3,500,000 (assuming a 7% annual return). Start that child a decade later at age 25 and they will only have roughly $1,700,000. Not bad, but not nearly $3,500,000 good.

For more ideas about how to help your children, read my post here about gifting a financial planning session.

If interested in starting a Roth IRA for your kids feel free to contact me at www.mynmfp.com/new-clients. For additional information about this topic, click on the title above.

What is missing from most do-it-yourself retirement plans?

Not the amount of money you are going to have, but the “What am I going to do in retirement” question is often not answered. Most folks who are preparing for retirement have a pretty good grasp on their projected account balances and the amount they need to save to reach that goal.

However, that is only one piece of the retirement planning puzzle, i.e., having enough money to retire. But do you truly know how much money you will need to retire if you are not sure of your cash flow requirements in retirement?

For example, have you planned for the following:

• Are you downsizing or moving in retirement to be near grandchildren or to live on a golf course (think of cost of living adjustments)

• Are you traveling and how often (domestic travel, international, or both)

• Do you want to start a business or will you seek part-time work

• Are you going to purchase a major asset, e.g., a second home, an RV or a boat

• Do I want to help my children out financially

• Is charitable gift giving part of your estate plan

The point being: how can an individual know how much money they will need for their ideal/dream retirement, if they do not know what they are going to do in retirement. If your retirement plan does not include a future cash-flow analysis predicated upon projected spending needs to meet your retirement plan, then how good is your planning? This is where your financial advisor can help. If you have any questions about financial planning, feel free to contact me at www.mynmfp.com/new-clients. For additional information about this topic click on the title above.

How much do you need to save to reach $1M (broken down by your age group)!

I always like incorporating this idea (or some form of this chart) in my presentations to company employees when talking about their company 401k plan. In fact, I think it is one of the most poignant examples showing employees (or clients) why they should start saving earlier rather than later.

Simply put, it is easier to save $350 per month in your twenties than it is to save $2,000 per month in your forties. Some caveats regarding the values listed below: it is assumed that you save the same amount each year, you earn 7% on your investments each year, and that you have utilized a tax-deferred savings vehicle, e.g., a 401k or IRA.

How much do I need to save (each year) to reach $1,000,000?

20 years old - $3,270

30 years old - $6,760

40 years old - $14,770

50 years old - $37,200

60 years old - a depressing amount

Now you can see why I preach to my clients to “invest early and often” because the earlier you start, the more time you have on your side and the more compounding can work in your favor.

Now that you know how much you need to save, if you are interested in how to spend these savings in retirement, click here for a post about your retirement withdrawal rate.

If you have any questions about investing, shoot me a quick request here https://www.mynmfp.com/new-clients/. For more information about amounts needed for different age groups click on the title above!

Interested in the the investing trifecta? Then take a look at HSAs and their new contribution limits for 2019!

Why is a Health Savings Account (HSA) the equivalent of hitting the investing trifecta? Well, because it gives you three (3) tax breaks. It’s normally hard to even get one (1) tax break!

So, what are the three (3) tax breaks. First, you can deduct your HSA contributions from your current year’s income. Second, your earnings grow tax free inside of a HSA. And finally, your withdrawals are also tax free if used for qualifying medical expenses. Those three benefits are not too bad in and of themselves. But HSAs have one more trick up their sleeves. HSAs don’t require the “use it or lose it” provision of Flexible Spending Accounts (FSAs), i.e., your account can continue to grow through the years.

However, with the good must come the bad, it seems. They are a few flies in the ointment with HSAs. For example, HSA accounts are only available for those who purchase high-deductible health plans (HDHPs), HSA investing accounts are often subject to high fees, and the contribution limits are rather small.

Nevertheless, every little bit helps when saving for retirement. Especially considering that most health care cost estimates for a couple retiring in 2018 come in around at $250,000+ for lifetime medical expenses. So here are the new contribution amounts for 2019:

2019 Maximum contribution limits

Single - $3,500 (up $50 from 2018)

Family - $7,000 (up $100 from 2018)

For more information about 2019 HSA limits, please click on the title above.

How should you change your portfolio to reflect a low-return environment?

Hopefully, not at all. If you are invested in low-cost, highly diversified funds matching your risk tolerance with your asset allocation, then stay put.

Why? Because you already have greatly reduced or almost eliminated the largest headwind to anyone’s portfolio: costs. Most studies show that by reducing costs, an investor achieves their single greatest boost to investment returns. Not by being a great stock picker, but by reducing one’s costs. That is the single most effective lever (i.e., the reduction of investment costs) to manipulate when trying to increase one’s retirement account balance over an investing lifetime.

Secondly, matching your risk tolerance to your asset allocation is key so that you don’t get the urge to sell in down markets. If you are a “nervous Nelly” about high equity exposure or you are nearing retirement, then investing 80% or 90% of your portfolio in stocks is not the way to go (excluding 20 somethings from this hypothetical - who can afford to have high stock exposure). Your asset allocation should reflect your investment risk tolerance, as well as, your investing time horizon. For example, for those nearing retirement you can peak under the hood of most major life-cycle funds and see that their stock exposure probably varies between about 40% to about 60%. Adjust within this equity exposure depending on your risk tolerance.

Last, if you are utilizing funds that are non-correlated (another way of saying “diversified”), then studies show that your portfolio will weather stock market gyrations better than non-correlated portfolios. What does a non-correlated portfolio contain? Simply put, one with appropriate levels of stocks, bonds, and some alternative assets (e.g., real estate investment trusts, oil, metals, hedge funds, futures, etc.). The purpose of non-correlation is to have some assets zig (go up) when others zag (go down).

If you are not doing the above, then you have some work to do. With Vanguard forecasting market returns of 4% to 6% over the next decade, you need to market proof your portfolio to squeeze every last bit out of it. For more information, click on the title above.

You can save more for retirement in 2019!

After not rising for many years, retirement savers can rejoice as they can save a few extra dollars in 2019. The increase is not an astronomical increase, but an increase, nonetheless. Here’s the breakdown:

IRA’s - contribution limit for an individual is now $6,000 in 2019 (plus a $1K catch-up contribution for those 50 and older); deductible phaseouts are up $1K for singles/head of households and up $2K for married couples

401k/403b/457/Federal TSP - contribution limit for an individual is now $19,000 in 2019 (plus a $6K catch-up contribution for those 50 and older)

SEP IRA’s/Solo 401k’s - contribution limit for an individual is now $56,000 in 2019

For more information about additional defined contribution and defined benefit plan contribution limit changes please click on the title above.

A quick primer on tax loss harvesting . . . in light of recent market turmoil!

Nobody likes selling a loser, but sometimes there can be a silver lining. Tax loss harvesting allows an investor to reduce their tax liability by selling selected stocks that have lost value. And, everybody appreciates not having to pay more in taxes. As such, here are some tax loss harvesting tips:

• tax loss harvesting works best in taxable accounts

• remember, investment losses are first used to offset capital gains of the same type (e.g., short term losses offset short term gains)

• net losses of either type (short or long term capital gains) can be used to offset the other

• additionally, overall net capital losses can be used to offset up to $3,000 of ordinary income (and any excess net capital losses can also be carried forward for future tax years)

• determine whether first-in-first-out (FIFO) or choosing specific shares will allow you to pick shares with the highest cost basis

• if tax loss harvesting, don’t buy a “substantially identical” security within 30 days of your tax loss sale (i.e., be aware of the wash sale rule) as this may prevent your ability to take a tax loss on the sale

As always, before conducting any tax loss harvesting activity, it is best to consult with a tax professional. Click on the title above for more information.

How much should you save for "Junior's" college expenses? Is a quarter-million enough?

An interesting article covering the nuances of saving for college, mostly focusing on college inflation rates and anticipated rates of return for your college savings accounts. The long-story-short is that general rules of thumb still apply, even in this fluid branch of investing/saving. The article highlights studies that seem to suggest private versus public university rates of inflation can (and do) vary over time and that common historical rates of stock market returns will be lower over the next decades. Nevertheless, the following general maxims are good starting points for your college savings needs:

• Assume college costs will increase by 6% a year (e.g., roughly CPI inflation rate + 3%)

• Assume your rates of return will average 5% (e.g., due to possible subdued future market returns and scaling of your college savings account to reduce equity exposure)

Both of these rules err on the side of being conservative, but it helps to emphasize that one cannot seemingly save too much for their children’s college costs. The article aptly notes that a $20,000 public university in 2018 will cost more than $57,000 in eighteen (18) years at a 6% rate of inflation. That’s close to a quarter-million after four (4) years of undergraduate study. That’s why at Intelligent Investing, Inc., we teach investing early and often. Click on the title above to learn more about saving for college!

Fifteen (15) Life Financial Rules!

Financial literacy and investing can be boiled down into some pretty simple general rules. These maxims are not to be followed blindly but implemented with an eye towards the fluidity of one’s financial situation. Nevertheless, these “North Star” type guiding principles are not a bad place to start.

With the above in mind, let’s cover a few of these general rules:

• Avoid debt (especially high-interest debt; notably, credit card debt)

• Have an emergency fund (at least 6-12 months worth set aside for life’s unexpected occurrences)

• Have a budget (stick with it and pay yourself first)

• Use tax-advantaged accounts (it is hard to beat tax-deferred growth)

• Invest regularly, appropriately (think age/risk appropriate asset allocation), and keep your investing costs low (watch expense ratios and utilize index funds)

• Protect your credit score (it will save you money in interest costs throughout your life)

• Seek out a fee-only financial advisor if you need help

If you would like to read more about Life’s 15 Financial Rules, click on the title above for more information.

Tax planning in retirement? Here are some ideas . . .

They say you should never let the tax tail wag the dog, but why pay more in taxes than you need to. Enter, taking some time to plan your income streams during retirement; wherein, a little planning regarding your income sources can save you a lot in taxes.

Some new retirees may not be aware that their social security benefits can be subject to increasing levels of taxation and that they may need to file quarterly tax payments. Moreover, some folks may not be aware that if their income rises too high during retirement that up to 85% or their social security benefit can be subject to taxation. Maybe then a little tax planning is in order.

With that thought in mind, generally, investors would prefer to have three sources to draw from during retirement: taxable accounts (e.g., brokerage accounts), tax-deferred accounts (e.g., traditional IRAs and 401k accounts), and tax-free accounts (e.g., a Roth IRA). By utilizing these three different accounts at different times, one can best control their tax liability,

For example, some folks may enter retirement in a low tax bracket, so generally withdrawing from tax-deferred accounts and taxable accounts will minimize their tax liability when their income is lowest (while also reducing future RMD tax liability). Since a married couple can report up to $77K in 2018 income while still remaining in the 12% tax bracket, it can be advantageous to use this income bracket for taxable and tax-deferred account income. For other folks who may enter retirement with high income levels (e.g., due to pension income and/or rental income streams) and anticipate that they will drop over time, they may wish to consider using their tax-free accounts if they still require additional income (thereby, avoiding taxation at their highest marginal rate).

Remember though, that everyone’s tax situation is different and that you should check with a qualified tax professional to see if these tax strategies would work for you. The key is though, a little advance planning about your anticipated income streams can reduce the amount of taxes that you pay.

For more information, please click on the link above!

Are women better investors?

Recent research, according to this article, highlights that women investors have performed better than their male counterparts when it comes to investing despite wage/pay gaps of $.22, lower paying professions, and single parenthood. Investing is hard enough even without all of these headwinds.

Why are women better investors? This article notes their tendency to be more risk averse, their ability to trade less frequently, and their utilization of age-based investments (although the article notes their high fees). Notably, this risk averse investment style has paid off since bonds have bested stocks by .2% from 2000 to 2016.

Statistically, stocks outperform bonds over most periods of time, so 2000 to 2016 is a bit unusual. As such, many women investors may want to consider increasing their stock exposure going forward. What else might help women investors? As suggested by this article, here are some quick thoughts to keep in mind:

• Develop a financial plan for retirement (you need to know where you are going before you can get there);

• Maintain at least three (3) years worth of cash when entering retirement, so you need not have to sell your equity stakes in down markets;

• Always pay yourself first and continue to invest regularly; and

• Always keep 6-12 months worth of an emergency fund for unexpected expenses or to cover you during a layoff period.

And, above all, keep being a superior investor! For additional information about this topic, click on the link above.

Stock Market Volatility Making You Nervous? What to do by age group . . .

With the stock market losing ground more often than not lately, what should you do? If you find yourself a little nervous by this occurrence here are some ideas:

For investors in their 60’s and beyond

• Make sure your asset allocation (bond/stock mix) is suitable for your risk tolerance and age (utilize maxims like invest your age in bonds (a conservative approach) or invest 100 minus your age in stocks);

• Revisit (or create) your financial plan to make sure you are on retirement track;

• Be flexible and adjust your budget/withdrawal rate to reflect weaker market returns; and

• Ensure you keep a cash reserve/“bucket” of two to three years worth of living expenses on the side for down markets.

For investors in their 40’s and 50’s

• This group also needs to make sure their asset allocation (bond/stock mix) is suitable for their risk tolerance and age (utilize maxims like invest your age in bonds (a conservative approach) or invest 100 minus your age in stocks or mimic allocations found in appropriate target date funds); and

• Check the quality of your bonds, remembering that high quality, shorter duration bonds exhibit negative correlations with stocks and thereby provide a better ballast to ones portfolio during turbulent stock market times.

For younger investors

• Stay the course and add to your equity positions in these down markets; and

• Only invest in stocks money that you will not need for the next 5-10 years, money that is needed for shorter time horizons should be in short to intermediate term/duration bonds or cash accounts.

For more information about this topic, click on the link above!

With stock valuations in a late economic cycle, non-correlated bonds are your best bet!

A really interesting article pointing out which bonds tend to serve their purpose most dutifully, while others fall short (as all bonds are not created equal). For sometimes, investors seem to lose sight of the fact that bonds really should provide a ballast to one’s portfolio during turbulent stock market times.

In that light, one should ensure that a least a portion of their bond portfolio preferably exhibits a negative correlation with stock movements. Notably, quite a few bond sectors don’t. For example, high-yield bonds and corporate bonds tend to display a higher correlation with stocks than U.S. Treasuries. Although yields are low on Treasuries, one of their other major functions within a portfolio (besides investment return) is to reduce losses in stock market downturns. As witnessed by their negative correlation with stocks, bonds “zig” when stocks “zag,” thereby providing buoyancy to one’s sinking stock ship.

The linked article also succinctly points out that a purpose of some of your bond portfolio’s function/objective/diversification is best met by bonds of high credit quality with short duration. This point is further supported by the fact that most “new’" bond money is going into ultrashort duration funds, while corporate and high-yield inflows have been drying up in 2018.

Click on the link above to read more about bonds and their correlation with stocks!