Brynne N. from Rockford, IL asks: Hi Mitch, I am writing to ask you for ideas for relatively safe investments in highly volatile markets. I just do not have the stomach for all the ups and downs, but I still would like to see some growth over the next couple of years. Thank you.
Mitch’s Response:
Thanks for writing, Brynne. I can empathize with the challenges of navigating elevated market volatility – it is certainly not easy. Since you explicitly mention you do not have the stomach for the ups and downs, I am going to make my response solely about investing in fixed income in the current environment. The good news for you is that your options are better today than they have been in years.
Let’s start with the “risk-free” category, which includes Treasury bonds issued by the U.S. Treasury and backed by the government. Interest rates have been climbing quickly in 2022, which has resulted in rising yields on short-duration Treasuries – meaning you do not have to hold them for a long period of time to earn a modest but nicely positive return. Here is a simple table showing you where those yields stood as of the end of September:
It is easy to fall in to emotional decision-making when the market fluctuates. You may be asking yourself questions like: What should you do when market corrections occur? Could volatility be an opportunity?
Instead of giving into emotional decision-making, I recommend finding a strategy that could help you steer through any financial change Our guide, “Helping You Manage Market Volatility,” will provide you with insights and tips to do just that. Get answers to questions like:
Market downturns can and will occur, but what should you do?
How can diversification help you manage volatility without compromising your returns?
When volatility is too much for you to handle, how can a money manager help?
Can volatility actually be an opportunity?
If you have $500,000 or more to invest and want to get answers to the questions above, click on the link below to download this guide today!
These are certainly not gangbusters-type returns, but they are also not anchored to near-zero as they have been for the better part of the last decade. The 6-month U.S. Treasury bond, for instance, pays close to a 4% yield today whereas a year ago that yield was a meager .06%. Treasuries may satisfy your desire to see some growth over the next couple of years without enduring stock market volatility in the process.
If you wanted to move a little further out on the risk curve, you can likely earn a higher yield in investment grade corporate bonds and municipal bonds. Higher credit spreads are also allowing investors to properly get compensated for the risks being taken in the credit markets, and we have also recently seen a meaningful increase in municipal bond yields in the short and intermediate portion of the curve. Maintaining a focus on high quality and investment grade bonds would be the optimal approach, in my view.
One key thing to remember is that bond prices will fluctuate as interest rates change, so bear in mind that locking in a current interest rate may mean the value of your bond will fall if interest rates rise. Having a plan to hold on to your bond to maturity so you can earn the full interest and have your principal returned make these fluctuations matter less.
In addition, there are other steps you can take to help navigate market volatility. To help give insight into some ways you can do this, check out our guide, “Helping You Manage Market Volatility.”2 It will provide you with insights and tips to do just that. Get answers to questions like:
Market downturns can and will occur, but what should you do?
How can diversification help you manage volatility without compromising your returns?
When volatility is too much for you to handle, how can a money manager help?
Can volatility actually be an opportunity?
If you have $500,000 or more to invest and want to get answers to the questions above, click on the link below to download this guide today!
1 U.S. Department of the Treasury, https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView
2 ZIM may amend or rescind the guide “Helping You Manage Market Volatility” for any reason and at ZIM’s discretion.
3 ZIM may amend or rescind the guide “Helping You Manage Market Volatility” for any reason and at ZIM’s discretion.
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