Announcer:
4 Your Money is brought to you by NelsonCorp Wealth Management.
Brandy Auterson-Hurst:
It’s now time for 4 Your Money. We’re joined by David Nelson, CEO of NelsonCorp Wealth Management. Welcome back, David.
David Nelson:
Thank you, Brandy. I appreciate it.
Brandy Auterson-Hurst:
So over the past few years, we’ve witnessed a significant shift in the bond market with total return strategies losing their luster. Can you elaborate on what’s driving this change?
David Nelson:
Yeah, so total return, in a simplistic explanation, is, essentially you’re clipping the coupons; in other words, the interest that the bond itself is paying. But in addition, what you’re hoping for is that interest rates drop and subsequently you pick up a little capital appreciation. So the teeter-totter that I’ve spoken about, as far as a fair amount on the program here. Clearly that’s not the case these days. We’ve seen interest rates go up and go up pretty dramatically.
So a chart I brought along today, again, it illustrates I think what probably many individuals already know out there, but it’s looking at the bond market and it’s looking over the last five years. And what you could see with that yellow straight line is that over the last five years, essentially, what the bond market has yielded is pretty close to zero, which is depressing for those individuals that rely upon these instruments as a conservative investment.
So again, as we’ve discussed with people as far as in the past, it’s just really crucial that people keep their eyes open and look at reality. And reality has been pretty negative as far as for the bond market, again, over the last several months.
Brandy Auterson-Hurst:
Okay. So given the shift, is there anything investors should do to adapt their investment approach?
David Nelson:
Well, I think it’s really, really important that they recalibrate as far as their expectations. Again, the days of getting your coupon of three, four, five percent, and then on top of that, some appreciation, as well, is probably gone. Holding onto your capital, understanding as far as the bonds and clipping coupons, is probably what people can expect going forward, and not much as far as an appreciation.
Brandy Auterson-Hurst:
If you missed any of our discussion, we’ll make it available for you on OurQuadCities.com.
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