Bond Market Returns That Cannot Be Repeated


A couple of interesting charts I stumbled across.

The first one is from via Abnormal Returns;

We might be in the neighborhood now of Is the strategy broken and if we are not now, we soon will be and then we'll move on to the next couple. It is in this vicinity where incorrect behavior leads to permanent impairment of capital. A valid strategy will at times look or feel wrong. No strategy can always be the best and as I always say, it doesn't have to be.

Any valid strategy, combined with an adequate savings rate, a suitable asset allocation (this will change over time) and the avoidance of truly self-destructive behaviors can get you most of the way there if not all the way to where you think you need to be. Thinking you need $1 million to retire and getting to $870,000 might requiring scaling back some but wouldn't be a catastrophe, thinking you need $1 million and only getting to $230,000 might be a catastrophe. I say might be because even then you'd figure it out because you had to.

Whatever your strategy is, it will at times challenge you emotionally. It is ok to feel that emotion but you makes things much more difficult if you succumb to that emotion.

This next one comes via a Tweet by Charlie Bilello;

This is an amazing coincidence. The only point I would make is that it is impossible for the performance of the bond market to repeat from here, literally impossible. In the last 20 years, the yield on the 30 year US Treasury has dropped from 6.XX% down to 3.XX% and of course from the early 1980's they dropped from much higher rates, like in the neighborhood of 15%. We only get a repeat performance after rates go up a lot. That is not a prediction, it is simply the only way it happens again.

That does not invalidate bonds as a portfolio tool but should create a point of understanding for future returns. Any model that incorporates past performance includes unrepeatable returns from the bond market.

You could read that and take it as another reason to give up on retirement saving or you could instead take it more constructively, knowing it might be an challenge that you need to overcome and you've got X number of years to overcome it. If you're now retired and drawing income from your portfolio then it could be a call to actively include higher yielding fixed income exposures until/if rates go up. Rates have started to go up, I bought short term treasuries for clients this fall as the yields there have become compelling once again.