Financial advisors ??

[RiverRat1]

Should any FA be or have been putting any customer in bond funs over the last 3-5 months?

My sister called me and it seems (I don't have the exact details yet) that her FA put her in bond funds just a few months ago. So obviously she's down a lot with rates rising.

And with rates most likely going up a lot more the rest of this year I'm not sure what to tell her at this point (if she's really invested in bond funds and down a lot).

[whitetailtrail]

Past 6 months could have somehow triggered a rebalance according to her/her FA investment plan to realign her with appropriate stock to bond ratio.

Say 80/20 equity to bond ratio was in place, if that creeped to 84/16 due to growth or other factors they could have rebalanced to the appropriate ratio to maintain the risk profile agreed on


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[TeamAmerica]

Should any FA be or have been putting any customer in bond funs over the last 3-5 months?



My sister called me and it seems (I don't have the exact details yet) that her FA put her in bond funds just a few months ago. So obviously she's down a lot with rates rising.



And with rates most likely going up a lot more the rest of this year I'm not sure what to tell her at this point (if she's really invested in bond funds and down a lot).

She is only down on paper. The dividends should not be down (in fact yield may be up!). I'm with Buffet that I'd rather be in equities even in older age. Does she have dividend reinvestment so at least she is buying back in at lower share prices?

[lck90]

A little off subject, but does anyone know anything about ibonds? Their interest rate is based on inflation. Started to look into them the last few months.

[Shane]

What did she say when the FA asked her about her goals, risk tolerance, desired return, time horizon, etc? How much of her portfolio was allocated to bonds? What type of bond funds does she own? Long, intermediate, short duration? Investment grade and/or high yield? Floating rate or fixed? TIPS? US or international? Etc.....

The answer to your question depends on a lot of things.

[RiverRat1]

Past 6 months could have somehow triggered a rebalance according to her/her FA investment plan to realign her with appropriate stock to bond ratio.

Say 80/20 equity to bond ratio was in place, if that creeped to 84/16 due to growth or other factors they could have rebalanced to the appropriate ratio to maintain the risk profile agreed on


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It was a new account she started 4-5 months ago. Otherwise I'd get what you're saying.

We knew back in Nov/Dec there was a 95% chance the FED would raise rates aggressively this year, right? So how could a FA ever say risk/reward was good enough to buy bond funds in early 2022? You stand to gain what, 2-3% max but lose 10-15% if rates shoot up like they did/are.

[RiverRat1]

What did she say when the FA asked her about her goals, risk tolerance, desired return, time horizon, etc? How much of her portfolio was allocated to bonds? What type of bond funds does she own? Long, intermediate, short duration? Investment grade and/or high yield? Floating rate or fixed? TIPS? US or international? Etc.....

The answer to your question depends on a lot of things.

Not sure.

Lets say she asked for lowest risk. I'd assume the FA would have put her in even more bond funds then and she'd be losing even more.

Why don't FA's use cash as a position?

Again - I'll get details later. But IMO it's plain stupid to put anyone in bonds last Nov-Dec or early 2022. I'd like to see a risk/reward that shows it was worth the risk.

[Shane]

It was a new account she started 4-5 months ago. Otherwise I'd get what you're saying.

We knew back in Nov/Dec there was a 95% chance the FED would raise rates aggressively this year, right? So how could a FA ever say risk/reward was good enough to buy bond funds in early 2022? You stand to gain what, 2-3% max but lose 10-15% if rates shoot up like they did/are.

For people like you and me, it may not make much sense. Some people are far more worried about potential 40-50% declines in stocks, regardless of the upside, and they'd rather stick with less volatile bonds - regardless of the limited upside. And some of those people have enough money and/or low enough needs that they'll be fine in the long run even if they don't make much money going forward.

The answer is always "it depends".

That doesn't mean it was the right thing for your sister. It may not be. There's no way to know without knowing all the details of her situation though, and you probably don't need to share all those on a public forum. I wouldn't throw any stones at her FA without knowing the details of her situation and their original conversations though.

There are always pros and cons to any and every type of investment. They all can fit well for one person's situation and be totally wrong for someone else.

[Shane]

Not sure.

Lets say she asked for lowest risk. I'd assume the FA would have put her in even more bond funds then and she'd be losing even more.

Why don't FA's use cash as a position?

Again - I'll get details later. But IMO it's plain stupid to put anyone in bonds last Nov-Dec or early 2022. I'd like to see a risk/reward that shows it was worth the risk.

It's hard to evaluate a long term investment plan after just 6 months too - regardless of what investments are used. Maybe 6 years from now she'll be looking fine. Hopefully so. Maybe she and her FA will make some adjustments along the way that will help as well.

Sometimes people don't implement an FA's advice fully though. Maybe what she invested in isn't exactly what was recommended to her. Maybe it is. I certainly don't know. You may not know for sure, hearing only one side of a conversation.

[jerp]

I will say that so far in 2022 there has been no place to hide other than cash. Year-to-date the S&P is down 7.74%, NASDAQ -14.53%, investment grade bonds, high yield bonds and municipal bonds are all down from 6-8%. My point is, even traditionally diversified portfolios suffered - your basic 60/40 portfolio had negative quarterly returns for the first time in several years. And to answer one of your questions, yes it is common to hold some cash as an asset class - both to reduce volatility and to have some "dry powder" when opportunities arise you want to take advantage of.

[gingib]

For people like you and me, it may not make much sense. Some people are far more worried about potential 40-50% declines in stocks, regardless of the upside, and they'd rather stick with less volatile bonds - regardless of the limited upside. And some of those people have enough money and/or low enough needs that they'll be fine in the long run even if they don't make much money going forward.

The answer is always "it depends".

That doesn't mean it was the right thing for your sister. It may not be. There's no way to know without knowing all the details of her situation though, and you probably don't need to share all those on a public forum. I wouldn't throw any stones at her FA without knowing the details of her situation and their original conversations though.

There are always pros and cons to any and every type of investment. They all can fit well for one person's situation and be totally wrong for someone else.

It's hard to evaluate a long term investment plan after just 6 months too - regardless of what investments are used. Maybe 6 years from now she'll be looking fine. Hopefully so. Maybe she and her FA will make some adjustments along the way that will help as well.

Sometimes people don't implement an FA's advice fully though. Maybe what she invested in isn't exactly what was recommended to her. Maybe it is. I certainly don't know. You may not know for sure, hearing only one side of a conversation.

x2!

Well said. The biggest thing is what did she want and her goals

[SabineHunter]

One reason why I don't use a FA

[Benson]

x2!

Well said. The biggest thing is what did she want and her goals

X3

It all just depends on her growth and risk profile. Investment strategy depends a lot on age, purpose of investment and also exit and exit manor of exit of said investments. Risk beta is correlated to return so obviously an older person getting close to retirement is going to be more risk averse and focus preservation of the investment as opposed to high yield growth. I hate to say it, but it depends.


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[RiverRat1]

For everyone saying "it depends" answer yes or no.

We all knew(95+% sure) the FED was going to raise rates a lot in 2022 since they flat out told us they would last December and they will raise them a lot more this year (90+% sure)?

When rates rise bond funds drop in price? I know there may be a few specialty super short term funds or other but we're talking most bond funds.

[Jon B]

I'm starting to think putting it under the mattress is safer.