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Asset Allocators: We Have A Problem And It’s Not The Stock Market

In the past, long term government bonds have been huge assets in investment portfolios. This is because they have typically been no risk assets. They also are negatively correlated to stocks and when you combine stocks and bonds you get a really efficient portfolio. Finally, these bonds have provided great returns as the total return for 20 years has reached almost 300%. In the future the problem is that bonds will not provide returns as high as they used to. The market is expected to see inflation and the economy is expected to weaken.

Key Takeaways:

  • Super low yields on long-term government bonds mean they will earn a negative rate of return.
  • The recommendation is to take profits on one-third of your government bond position now.
  • When the post-virus economic rebound arrives, bail out of government bonds entirely.

“They have been a credit-riskless asset. So, through recessions, crises, and scares they occupy a core spot in the portfolio.”

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