By the Numbers: Breaking the 40% rule
George Moriarty, chief content officer at InvestmentNews, says fiscal stimulus efforts pose a challenge to fixed-income investments and call into question the rule that fixed income should make up 40% of a portfolio.
Transcript:
I’m George Moriarty, and this, is By The Numbers.
Today we’re talking fixed income, and the number of the day is 40, because we’re looking at the wisdom of sticking to a 40% bond allocation.
At Morningstar’s recent annual conference several panelists agreed that there is more stimulus to come, and that financial advisers need to prepare client portfolios now, to prevent a shock on the fixed income side.
Panelists Rick Rieder, global fixed income CIO at BlackRock, and Anne Mathias, senior strategist at Vanguard, both support the Fed’s emergency efforts to pump money into the economy in the wake of the pandemic. But they acknowledge the risks this causes for income investors.
“I think the portfolio you had a year ago has to be really different from the portfolio you have today,” said Rieder. “You have to build a cushion in other parts of the portfolio and find real income.”
For alternatives, Rieder suggests gold and dividend paying equities, as well as TIPS, the inflation protected fixed income vehicles.
Mathias agrees that TIPS are a smart defensive play, and she also sees an opportunity for ACTIVE fixed income investing, saying this is the golden age for active investing in fixed income, because what really matters now is security selection.
And that all means, the 40% bond allocation is likely a thing of the past.
That’s all for this week. I’m George Moriarty for InvestmentNews, and from my home office to yours, stay safe, and we’ll see you next week.
