The titles of two recent articles, by investment advisors for whom we have great respect, should be a warning sign to those invested in bonds. Michael Jones, CEO of Riverfront Investment Group, titled his article “The End of the 35 Year Bull Market in Bonds”. David Adler, Chief Macro Strategist for Informa Financial Intelligence, titled his article “Is There Anyone Left Who Likes Bonds?” Both make convincing cases that now is the time to rethink your strategy with regard to bond holdings.
For several years, the Federal Reserve has given every indication that they plan to follow a policy of gradually raising interest rates with quarter point increases every 3 – 6 months. And, they’ve followed through on those messages. In 2017 they raised rates 3 times and Wall Street’s current belief is that there will be 3 or 4 additional increases in 2018 and more in 2019.
What’s the impact? As interest rates increase, the value of bonds generally decrease. We recently advised all the investors in our Bond Fund that now is the time to rethink their investment in bonds as we believe the fund may underperform other types of fixed income investments for several years to come.
As an alternative, we suggested investments in any of our Development Company Investment Certificates. They offer guaranteed rates of return that are significantly better than what you might get from a local bank. Investments of as little as $1,000 can earn rates ranging from 1.7% (for a 6 month certificate) to 3.15% (for a 5-year certificate). We also offer a Savings Certificate that pays 1.6% from day-of-deposit to day-of-withdrawal, i.e. there is no holding requirement.
As always, we encourage finance, investment and endowment committees to consider several questions. First, what is the missional purpose of the fund under consideration? Second, what is/are the distribution plan(s) (both timing and amount) for these funds? Third, what is the committee’s risk tolerance for investment of the fund(s) in question? We would be happy to help you think through these questions and develop an investment strategy to achieve your goals. Please feel free to call Ted Soto at 804-521-1122 to arrange such a meeting.