Investing In Bonds

Investing in bonds can be a great hedge in an uncertain market. Of course, every market is uncertain to one degree or another, but when you want stability and security for your portfolio, bonds may be a valid option.

Unfortunately, we have seen The Fed raise interest rates at a historic rate. Our current rates are by no means even close to the highest many of us have seen in our lifetime, but after having historic low rates for an extended period of time due to the 2008 financial crises, we have become accustomed to low rates. Such low rates enabled many people to make purchases such as homes, cars, boats and even capital expenses for businesses. The interest rates we were paying on the loans for these items were manageable, but as the interset rates moved up, many people have found themselves in positions where they can't afford to make new purchases. The Fed has basically priced many people out of the markets. The most notable sector is clearly the housing market.

If a couple purchased a $500,000.00 home in the summer of 2021, they could have expected to pay roughly $1,900.00 per month for a 30 year fixed rate mortgage. With Our current rates now closing in on 7.5%, the same 30 year fixed rate mortgage on a $500,000.00 home would be over $3,300.00 per month. For those looking for solid investments with these higher interest rates, bonds may not be the best option. When interest rates rise, bond prices go down in value. Most bonds pay a fixed interest rate payment and if The Fed pushes rates up as they have over the course of 2022, the only way a bond payment can equate to other options with higher rates is if the investor pays less for the bond.

Over the course of 2022 (and moving into 2023), we are keeping an eye on bonds, but we are not necessarily adding bonds to our portfolio. We are heavy on stock positions (both long and short positions) and we utilize options to hedge our positions. This has worked out well for us thus far so we will continue to stay on course while keeping an eye on favorable bond opportunities.