Rather than serve as a hedge, bonds have been following the stock market lately as inflation fears have continued to batter the capital markets. However, investors shouldn’t shun bonds entirely.
As the start of the second quarter continues, it’s been a rough outing for bonds. Rising inflation and geopolitical tensions are not only hurting stocks, but the effect is also spilling over into bonds.
“The poor performance of bonds has robbed investors of a traditional haven at a time when stocks and many other markets have been swinging sharply, thanks to factors including the Federal Reserve’s first interest-rate increase since 2018 and the war in Ukraine,” the Wall Street Journal reports.
While it’s still early in the year to give up on bonds, one option is to harvest losses for tax reasons. However, with so much uncertainty swirling in the markets, the last thing to do is sell off and stay on the sidelines.
“What could make 2022 more tragic than it already is? If you sold your bond fund, only to watch it rise in price the rest of the year,” a Kiplinger article says.
“In such a case, you might have trouble facing yourself in the mirror,” Kiplinger adds. “For that reason, investors executing this strategy should consider laterally transitioning the fixed income proceeds into another bond fund or ETF. That move will keep your bond exposure in the portfolio while still having realized the loss”
An Aggregate Bond Fund to Consider
ETF provider Vanguard has a plethora of options when it comes to getting bond exposure. From short to long duration, investors can tailor their bond exposure to their portfolio needs.
For an all-encompassing, aggregate option, there’s the Vanguard Total Bond Market Index Fund ETF Shares (BND). Despite bonds correlating with equities lately, they still serve as a safe haven option, especially amid the geopolitical tensions in Ukraine.
As mentioned, BND is an aggregate bond option that seeks to match the Bloomberg U.S. Aggregate Float Adjusted Index. The index includes a wide spectrum of public, investment-grade, taxable, fixed income securities in the United States, including government, corporate, and international dollar-denominated bonds, as well as mortgage-backed and asset-backed securities, all with maturities of more than a year.
For more news, information, and strategy, visit the Fixed Income Channel.