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Government Bond Drawdown - September 2022

Key Takeways

  • During the 1990s, 2000s, and 2010s a 60/40 portfolio became popular because inflation was low, interest rates were declining, and bonds were generally negatively correlated with stocks when the stock market tumbled.
  • Long term government bonds were in an inflation adjusted drawdown from the 1940s to the early 1980s. That's 40 years of losing buying power by owning government bonds.
  • Diversifying outside of stocks and bonds can add useful components to a portfolio during periods of high inflation or rising interest rates.
  • With current increases in inflation and interest rates, long term government bonds are entering a drawdown that rivals the depths of the stagflationary period of the 1970s.

Important Disclosures

Data from 1/1/1926 through 9/30/2022. Long term government bonds are represented by the IA SBBI US LT Government Inflation Adjusted TR USD index, which measures the performance of a single issue of outstanding US Treasury bond with a maturity term of around 21.5 years. Comparisons to indexes have limitations because the results do not represent actual trading. It is not possible to invest directly in an index. Unmanaged index returns do not reflect any fees or expenses associated with the active management of an actual portfolio. Index performance is shown for illustrative purposes only and will change over time.

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Investing in securities involves risk of loss that investors should be prepared to bear. Past performance is not indicative of future results. Diversification does not guarantee a profit or protect against a loss.

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