Bonds as ballast in turbulent markets
19 March 2020 | Markets and economy
Tim Buckley: Greg, we get the question from clients a lot now about bonds in their portfolio. Like they hold a bond fund and they'll come out and say it's not really insulating me from the downturn. I still have losses in my overall portfolio and there's some days where bonds actually move with equities and everyone thinks they hate when one zig the other ones are going to zag. Now that happens over time but not every day and maybe explain a little bit of how you see a bond fund in someone's portfolio. Diversification it is providing.
Greg Davis: I mean the best way to think about it, just look at what we've seen year to date. We've seen Total Bond Market is one example. It's a broad-based bond fund that covers credit, Treasuries, mortgages, things of that nature. It's up 1.3%. The S&P 500 is down about 30%, so a lot of diversification and balance that you're getting from owning a bond fund. Yeah, on the inter-day basis, you could get co-movements, but the reality is it's a great diversifier for investors and allows you to have a tool to rebalance when you see a sell-off in the equity markets.
Tim: And we've yet to find the portfolio that's built for growth. That's going to insulate you totally against losses. The way to insulate against losses is go 100% cash and you're going to regret that over 10-20 years.
Greg: Right. Because you end up having inflation and you're going to have a hard time keeping up with inflation over time
Tim: So you're purchasing power drops, and so you see no real appreciation.
Greg: That's exactly it.
All investing is subject to risk, including possible loss of principal.
Vanguard ETF Shares are not redeemable with the issuing Fund other than in very large aggregations worth millions of dollars. Instead, investors must buy and sell Vanguard ETF Shares in the secondary market and hold those shares in a brokerage account. In doing so, the investor may incur brokerage commissions and may pay more than net asset value when buying and receive less than net asset value when selling.
References in this presentation to “Vanguard” are to our parent company The Vanguard Group, Inc. Vanguard funds are managed by Vanguard Investments Canada Inc., an indirect wholly-owned subsidiary of The Vanguard Group, Inc.
This material is for informational purposes only. This material is not intended to be relied upon as research, investment, or tax advice and is not an implied or express recommendation, offer or solicitation to buy or sell any security or to adopt any particular investment or portfolio strategy. Any views and opinions expressed do not take into account the particular investment objectives, needs, restrictions and circumstances of a specific investor and, thus, should not be used as the basis of any specific investment recommendation. Please consult your financial and/or tax advisor for financial and/or tax information applicable to your specific situation.
Certain statements in this presentation may be considered "forward-looking information" which may be material, involve risks, uncertainties or other assumptions and there is no guarantee that actual results will not differ significantly from those expressed in or implied by these statements. Factors include, but are not limited to, general global financial market conditions, interest and foreign exchange rates, economic and political factors, competition, legal or regulatory changes and catastrophic events. Any predictions, projections, estimates or forecasts should be construed as general investment or market information and no representation is being made that any investor will, or is likely to, achieve returns similar to those mentioned herein.
While this information has been compiled from proprietary and non-proprietary sources believed to be reliable, no representation or warranty, express or implied, is made by The Vanguard Group, Inc., its subsidiaries or affiliates, or any other person (collectively, "The Vanguard Group") as to its accuracy, completeness, timeliness or reliability. The Vanguard Group takes no responsibility for any errors and omissions contained herein and accepts no liability whatsoever for any loss arising from any use of, or reliance on, this material.
© 2020 Vanguard Investments Canada Inc. All rights reserved.