Bond Prices May Not Matter as Much as You Might Think They Do
While swift bond price declines can be frustrating, it’s important to remain focused on the long-term benefits of higher interest rates. Bond total returns have two main components: price return and return from income.
Changes to interest rates cause these two components to move in opposite directions.
As a medium- to long-term investor, you should care more about bond total returns instead of the negative short-term impact on bond prices. In fact, as we show in the chart, the long-term performance of bond investments has come mostly from income return, not price return.
Price Return and Total Return for U.S. Aggregate Bonds
Why Bond Bear Markets are Fundamentally Different From Stock Bear Markets
For bond investors, the price return component’s effect on total return decreases as time extends. For stock investors, the price return component of total return is much more significant. “The Lost Decade” is a great example of this: From January 2000 through December 2009, the total annualized return for the S&P 500 was –0.95%, inclusive of the reinvestment of dividends. The negative price returns caused by the bear markets of 2000–2002 and 2007–2009 had an immense impact on long-term returns.
Now take the bond bear market of the 1970s, which was seen as a terrible time to have been invested in bonds as both inflation and interest rates were soaring. But consider this: Long-term bond investors who reinvested their income returns, and remained patient as compounding took hold, nearly doubled their capital from 1976–1983. Over the longer term, bond total returns are driven much more by reinvestment of interest income and compounding than by price returns. So, try to look beyond the immediate pain of any losses appearing in your quarterly bond portfolio statements and instead focus on the longer-term upside of rising interest rates.
Interest Income And Reinvestment Make up the Largest Portion of Total Return in Bond Funds
Bond investing in the 1970s and early 1980s
Bond Math Holds up Even During Fixed Income Shocks
Consider short-term Treasuries: interest-rate-sensitive securities whose total returns are extremely sensitive to central bank policy changes. As interest rates on the short end of the Treasury curve have risen due to expectations of further Federal Reserve policy adjustments, so too has the weighted average yield to maturity for funds that invest in these securities. That provides a better foundation to help you weather further rate shocks as starting yields are now much higher. Even if rates were to rise an additional 200 basis points (bps) from here, you would now recoup any lost principal within a year and then benefit from higher yields moving forward—ultimately increasing the long-term value of your bond portfolios (see chart).
That means the time it takes to recoup your capital from an interest rate shock depends on your starting yield. A 200 bp rate shock from a 50 bp starting yield will take longer to break even when compared to a 200 bp rate shock from a 250 bp starting yield.
The bottom line—as rates move higher, bonds are more attractive, not less.
If you have any questions about your portfolio and how bonds may affect your financial plan, give us a call.
Have a great weekend!
Past performance is no guarantee of future results. All investing is subject to risk, including possible loss of principal. Investments in bond funds are subject to the risk that an issuer will fail to make payments on time, and that bond prices will decline because of rising interest rates or negative perceptions of an issuer’s ability to make payments.
Source: Vanguard
Golf Tip of the Week
5 Research-Based Feels That Will Upgrade Your Golf Swing, According To A Top Coach
Whether you’ve heard of it, you’ve likely seen a golfer who has benefited from the Titleist Performance Institute. If you work with a coach or golf-specific trainer, there’s a good chance you’ve benefited from it yourself.
The Titleist Performance Institute, or TPI, is a facility in California that studies the biomechanics of the golf swing, and helps players match their unique body to their swing. One of the co-founders of TPI, Dave Phillips, coaches Jon Rahm. And in his recent Golf Digest Schools program, the Golf Digest Top 50 Teacher shares some of the key things he’s learned.
There are different ways of doing this based on how your body is prone to move, but look closely at the very best, and you’ll see many of the same key moves start to emerge.
Hinge with your hips, not your back
The way you set up to the golf ball affects the way you swing the club—yet so many amateur golfers overlook their setup. Good posture is key to all this, Phillips says, adding that the key feeling golfers should feel is bending forward by hinging their hips.
“The best players create certain body angles by hinging from their hips. We call this for forward bend,” he says.
It’s that hip hinge that creates the space golfers need to start their swing, Phillps says. Golfers who don’t hinge enough from their hips will often compensate by rounding their upper back, which will limit their ability to turn on the backswing and cost them power.
*Feel* like you keep your body angles
Setting up with good posture won’t just help you move during your swing but will give you a good feeling that you’re keeping the same angles you created at setup as you swing.
“You can’t actually keep your angles exactly the same as you swing. But the best players minimize the change in their body angles. They don’t have huge changes,” he says. “When you have big changes in your body angles, you have to release those angles later in your swing, which can cause bad shots.”
Turn your right hip behind you
As you make your backswing, the best players measured by TPI do a great job loading their trail hip (right hip for right-handed golfers). To achieve this result, chase the feeling of turning your right hip behind you.
“If I were to draw a line on my tailbone at setup, they turn into their right hip so their right glute moves behind that line,” Phillips says, which you can see him demonstrate below.
Work belt buckle underneath body
One of the most common ways amateur golfers lose space as they swing is through the dreaded “early extension.” Their hips thrust toward the golf ball, and it creates a flip of the club driven with their hands. Some players can time this move, but most struggle to keep it consistent.
To avoid this, Phillips offers a swing thought based on what the best players do: “As they shift their weight [on the downswing], their belt buckle and hips work underneath them,” he says. “That way they create space for their arms to swing through.”
Shift, turn, push
When golfers struggle with a slice, it’s commonly because they’re turning too soon on the downswing, Phillips says. They turn too soon, which causes them to lose their body angles and send the club “over the top.”
The tips Phillips previously mentioned will help you avoid this fate, but to make sure you do, Phillips says to understand the golf swing sequence that the best players use.
“They shift their weight and feel the pressure in their lead foot,” he says. “Then they turn and push against the ground … as they strike the golf ball.”
Tip adapted from golfdigest.comi
Recipe of the Week
Sausage And Cornbread Stuffing
10 servings
Ingredients
- 3 cups (500g) polenta or corn meal
- 2 tbsp sugar
- 1 tbsp baking powder
- 1 1/2 tsp baking soda
- 2 1/4 cups (560ml) buttermilk
- 3 Eggs
- 60g unsalted butter, melted
- 1 tbsp vegetable oil
- 500g Italian Style Pork Sausages, casings removed
- 120g unsalted butter, extra
- 1 brown onion, cut into small cubes
- 4 celery sticks, cut into small cubes
- 1/4 cup chopped flat-leaf parsley
- 2 tbsp chopped thyme
- 2 cups (500ml) salt-reduced chicken stock
- 4 Eggs, extra
Instructions
- Preheat oven to 425°F. Grease a 23cm x 33cm baking dish.
- In a large bowl, stir polenta/corn meal, sugar, baking powder, baking soda and 3/4 tsp salt. In a small bowl, whisk buttermilk and eggs. Make a well in the center of polenta/corn meal mixture and stir in buttermilk mixture. Stir in melted butter.
- Pour batter into prepared dish and bake for 20 mins or until cornbread is golden brown and a toothpick inserted into center comes out clean. Let cool for 10 mins. Remove cornbread from dish and cool completely on a wire rack. Break cornbread into 4cm pieces and divide among 2 baking trays.
- Preheat oven to 245°F. Bake cornbread pieces, stirring often, for 30 mins or until dry but not brown. Cool. Position a rack in center of oven and increase temperature to 350°F.
- Meanwhile, heat oil in a large heavy frying pan over medium-high heat. Add sausages and cook, breaking sausages apart with a wooden spoon, for 10 mins or until browned. Using a slotted spoon, transfer sausage to a very large bowl.
- Add extra butter to the frying pan and stir until melted. Add onion and celery. Cook, stirring often, for 10 mins or until vegetables soften slightly. Stir in parsley and thyme. Add to sausage in bowl. Add cornbread pieces. Gently toss.
- In a medium bowl, whisk stock, extra eggs, 1 1/2 tsp salt and 1/2 tsp pepper. Gently fold into cornbread mixture, taking care not to mash cornbread.
- Grease a clean 23cm x 33cm baking dish. Transfer stuffing to greased dish. Cover with foil and bake for 50 mins or until edges are golden. Increase oven temperature to 375°F. Uncover and bake for a further 15 mins or until top is brown and crisp. Set aside for 10 mins before serving.
Recipe adapted from taste.com.auii
Health Tip of the Week
Melatonin For Sleep: Does It Work?
Melatonin sleep aids are growing in popularity, with 3 million Americans using them in 2012, according to a nationwide survey from the Centers for Disease Control and Prevention. If you’re among them or are considering melatonin for sleep, it’s smart to understand exactly how melatonin works.
“Your body produces melatonin naturally. It doesn’t make you sleep, but as melatonin levels rise in the evening it puts you into a state of quiet wakefulness that helps promote sleep,” explains Johns Hopkins sleep expert Luis F. Buenaver, Ph.D., C.B.S.M.
“Most people’s bodies produce enough melatonin for sleep on their own. However, there are steps you can take to make the most of your natural melatonin production, or you can try a supplement on a short-term basis if you’re experiencing insomnia, want to overcome jet lag, or are a night owl who needs to get to bed earlier and wake up earlier, such as for work or school.”
If you’d like to harness melatonin’s sleep-inducing effects, Buenaver recommends taking these steps.
Work with, not against, melatonin’s sleep-inducing signals.
“Melatonin levels rise about two hours before bedtime,” Buenaver says. “Create optimal conditions for it to do its job by keeping the lights low before bed. Stop using your computer, smartphone, or tablet—the blue and green light from these devices can neutralize melatonin’s effects. If you watch television, be sure you’re at least six feet away from the screen. Turn off bright overhead lights too.” Meanwhile you can help program your body to produce melatonin for sleep at the right time of day by getting exposure to daylight during the morning and afternoon. Take a walk outside or sit beside a sunny window.
Consider melatonin sleep help for occasional insomnia.
“Even sound sleepers have trouble falling asleep or staying asleep once in a while,” Buenaver says. “You may want to try melatonin for sleep if you have difficulty for more than a night or two.” Research shows that a supplement may help people with insomnia fall asleep slightly faster and may have bigger benefits for those with delayed sleep phase syndrome—falling asleep very late and waking up late the next day.
Use melatonin sleep supplements wisely and safely.
“Less is more,” Buenaver says. Take 1 to 3 milligrams two hours before bedtime. To ease jet lag, try taking melatonin two hours before your bedtime at your destination, starting a few days before your trip. “You can also adjust your sleep-wake schedule to be in sync with your new time zone by simply staying awake when you reach your destination—delaying sleep until your usual bedtime in the new time zone. Also, get outside for natural light exposure. That’s what I do,” Buenaver says.
Know when to stop.
“If melatonin for sleep isn’t helping after a week or two, stop using it,” says Buenaver. “And if your sleep problems continue, talk with your health care provider. If melatonin does seem to help, it’s safe for most people to take nightly for one to two months. “After that, stop and see how your sleep is,” he suggests. “Be sure you’re also relaxing before bed, keeping the lights low and sleeping in a cool, dark, comfortable bedroom for optimal results.”
Skip melatonin for sleep if …
Do not use melatonin if you are pregnant or breastfeeding or have an autoimmune disorder, a seizure disorder or depression. Talk to your health care provider if you have diabetes or high blood pressure. Melatonin supplements may also raise blood-sugar levels and increase blood pressure levels in people taking some hypertension medications.
Tip adapted from hopkinsmedicine.org
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Please review Ballentine Capital Advisors Disclosure Brochure for a complete explanation of fees. Investing involves risks. Investments are not guaranteed and may lose value.
This material is prepared by Ballentine Capital Advisors for informational purposes only. It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation or any particular security, strategy, or investment product.
No representation is being made that any account will or is likely to achieve future profits or losses similar to those shown. You should not assume that investment decisions we make in the future will be profitable or equal the investment performance of the past. Past performance does not indicate future results.
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i https://www.golfdigest.com/story/dave-phillips-golf-swing-thoughts-tpi-golf-digest
ii https://www.taste.com.au/recipes/sausage-cornbread-stuffing-recipe/s64vhhjy
iii https://www.hopkinsmedicine.org/health/wellness-and-prevention/melatonin-for-sleep-does-it-work
