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 James Nelson, financial planner at NelsonCorp Wealth Management. Welcome back, James.
James Nelson:
Thank you for having me.
Brandy Auterson-Hurst:
A lot of investors grew up with the idea that a balanced portfolio means owning both stocks and bonds, stocks for growth, bonds for protection. Is that relationship still holding up?
James Nelson:
Yeah, this is something that we think about a lot, and the chart I brought along today kind of illustrates this, and it shows the relative performance of stocks versus bonds going back to 2005. So when the blue line is above the zero mark there, stocks are winning. And when the line is below zero, bonds are winning. And from 2005 to 2019, things work the way that they’re supposed to. Stocks outperformed over time and during crises, bonds look pretty good. And you can see that in 2008, 2011, and 2016. It’s the classic seesaw approach when stocks go down, bonds rally.
But since 2020, stocks have outperformed massively and bonds have not looked so safe. And there’s a couple of reasons for that. One big reason is that interest rates have gone up in the last several years, which has made that a little bit of an issue. And then the S&P 500 is now heavily dominated by technology. Technology now makes up about 35% of that index, and it’s not the rate sensitive technology sector that it used to be.
Brandy Auterson-Hurst:
Okay. So how should investors be thinking about their bond exposure given all of this?
James Nelson:
Yeah, so we don’t think that we should abandon bonds altogether. In a genuine crisis, bonds will rally and provide some protection, but the data suggests that that traditional 60/40 portfolio may be a little outdated and needs some updating. So staying flexible with the bond exposure, the duration risk, and all environments really makes sense.
Past performance is no guarantee of future results. Investing involves risk. Depending on the types of investments, there may be varying degrees of risk. Investors should be prepared to bear loss, including total loss of principal.
Indices mentioned are unmanaged and cannot be invested into directly.
This video includes a paid appearance.