I’m not actually recommending TIPS (treasury inflation protected securities) right now, but Luskin actually makes a decent arguement for them.
The fact of the matter is that none of the treasury bills that you could purchase right now have a positive return available to them – the only reason to buy them is safety. Treasuries now have an after-inflation, after-tax yield that is negative. This means that anyone buying a treasury will guarantee themselves a negative return till maturity.
There really isn’t much in fixed income land to buy that will give you a positive return – perhaps some municipals, GNMA’s are a possibility, but there yield is effectively zero after taxes (but slightly positive if purchased in a tax-deferred account).
Bottomline, you need to watch your fixed income, but don’t panic. People are panicking a bit in the stock market as it is down a little more than 15%, however bond yields are down more than 50%, in some cases 70%.
A diversified portfolio that is low in cost and passively managed will fluctuate, but will hold up just fine in the long term, the key right now is patience.
Those with patience will ride out this storm, just like they’ve ridden out other, much worse storms.
Scott Dauenhauer, CFP, MSFP, AIF