Now’s a Good Time to Add Bonds to Your Portfolio
Paul Fain, CFP®
For the last several years, with short-term interest rates close to zero, bonds have been the Rodney Dangerfield of the investment world: “I get no respect!”
However, since March 2022, the Federal Reserve has lifted interest rates 11 times. This hit bond prices on the chin but also reset cash and bond rates (also called yields) for investors.
Money market funds, certificates of deposit, Treasuries and other government-backed bonds, and high-quality corporate bonds now have yields around 5% – the highest in more than a decade.
With inflation in gradual retreat, the Fed may hold rates high for a while longer, then start to back off. In the meantime, sitting in cash/cash-equivalent accounts may seem attractive, but in doing so, investors could miss out on locking in higher rates for a longer term.
To be certain, there is rarely a “right” moment to get in or out of a market, especially in the face of slowing economic growth, the possibility of recession, heightened geopolitical risk, etc. But since we are likely near the end of the Fed’s rate hikes, now is as good a time as any to add high-quality, short- to intermediate-term bond exposure.
It is relieving to say it: Bonds have our respect again, especially with conservative, income-seeking investors.
This article originally appeared in the Knoxville News Sentinel online on August 25, 2023.