The S&P 500 was down 0.7% in November as a new COVID variant was discovered. Equity markets fell 2% on the Friday after Thanksgiving or “Bleak Friday” as Schwab’s Liz Ann Sonders is calling it. Once again we saw that when risk assets go down, they all tend to drop together (even crypto). Bonds held up with the Barclays Aggregate Bond Index up 0.3%. Municipal bonds and TIPS were up about 0.9% on the month.
That is one of the reasons why a diversified portfolio should continue to hold bonds. Rates have been extremely low for more than a decade now, but fixed income securities still dampen the volatility that stems from the equity side of the portfolio. When rates do normalize, it makes sense that it won’t be all at once and that bond managers will find opportunities for returns even as they reinvest maturing issues into higher yielding bonds.
What about inflation?
Outside of TIPS, bonds don’t act as a hedge against inflation. They’re not supposed to. Equities and real estate fulfill this purpose. No one asset class can do it all. Combining multiple asset classes that give exposure to different risk and return profiles, however, can go a long way towards preserving and compounding wealth. Along with a comprehensive financial plan, a diversified portfolio removes the temptation to fight yesterday’s battles or daytrade today’s perceived risks.
As we wrap up the Thanksgiving holiday, we can’t help but share how thankful we are. This is a wonderful business to be in. The work is interesting and no day is the same. Our clients are kind, thoughtful, and engaging. Taking a moment to step back from the busy-ness of daily life and think upon that is humbling.