By: Ryan P. Johnson, CFA, CFP® - Director of Portfolio Management & Research
Looking at 1-year returns, we are at an extreme moment in time. While the closing low for stocks in 2020 came on March 23rd, the 1-year returns from March 16th are still impressive: large cap, mid cap, small cap, and international stock indices have generally gained 60% or more. Treasury bonds, viewed as the safe haven, have not fared well due to rising interest rates. While the price of gold has increased over the past year, relative to the S&P 500, the performance is near the 10-year low seen in 2018.
Using certain fixed income Exchange Traded Fund (ETF) returns as examples, over the past year, 1 to 3 year Treasury bonds returned less than 1%, 7 to 10 year Treasury bonds returned -4.5%, and 10 to 20 year Treasury bonds returned -14%. Seeing negative returns on “safe” assets could be surprising to many investors, but rising rates go hand-in-hand with lower prices (and vice-versa). This past year demonstrates that having a forward-looking active strategy provides real value on both the stock and bond portions of your portfolio. Our fixed income strategy focused on short-term corporate bonds that are less sensitive to rising rates.
Stocks and bonds are often represented by the S&P 500 and the Barclays Aggregate Bond Index. Many years ago, a 60/40 stocks/bonds portfolio was considered a typical allocation. At Buckingham Advisors, most of our clients fall in the Growth & Income profile, which has a 70/30 benchmark allocation. Our second-most populated profile is Growth, which has an 85/15 benchmark allocation. While custom portfolios are our specialty, we are using these benchmarks to illustrate a point. Within equities, we go beyond large cap U.S. stocks (S&P 500) and invest in small cap, mid cap, and international stocks using ETFs. These diversifiers have helped recent returns. Through 3/16/21, the 1-year return of a simple 60/40 benchmark was an impressive 41.7%. Our 70/30 benchmark had higher equity and higher fixed income returns, resulting in a return of 52.9%. The 85/15 benchmark benefitted from even more risk exposure, returning 63.9%. Over the past 5 years, our 70/30 and 85/15 benchmarks outperformed the simple 60/40 benchmark return as well.
As we continue to grow and approach $700 million of assets under management, our focus remains on one family, business, or foundation at a time. We work hard to help you save, grow, and protect your wealth. We would love for you to send the link below to your friends and family, so that we may assist other successful business owners and individuals with financial planning, investments, taxes, and more: https://mybuckingham.com/contact. Thank you for your continued trust and support.
Ryan P. Johnson, CFA, CFP®
Director of Portfolio Management & Research
RISKS AND IMPORTANT CONSIDERATIONS
News and opinions expressed here are for informational and educational purposes only and may change at any time based on market or other conditions or may not come to pass. This material is not a solicitation to buy or sell securities and should not be considered specific legal, investment, or tax advice. The information provided does not consider the objectives, financial situation, or needs of any specific individual. All investments carry a degree of risk and there is no certainty that an investment will provide positive performance over any stated period. Equity investments are subject to company specific and market risks. Equities may decline in response to adverse company news, industry developments, or economic data. Fixed income securities are subject to market, credit, and interest rate risks. As interest rates rise, bond prices may fall. Past performance is no guarantee of future results.