The stock market correction of 2022 has certainly dominated the financial headlines. The Nasdaq has lost about 13% in April, its worst monthly performance since the global financial crisis in 2008. The S&P 500 has fallen 13% so far in 2022, its steepest four-month decline to start any year since 1932. Canadian stocks are down about 1.5% in 2022. The big Canadian dividend ETF, Vanguard VDY, is up over 6% thanks to energy, financials and telco’s. Bonds have also taken a hit in 2022. There have been few places to hide. We’re looking at market corrections and bonds on the Sunday Reads.
On MoneySense Jonathan Chevreau asks if bonds still make sense for retirement plans. From that post, on bond returns:
Some were down 10% or more, like the iShares Core Canadian Long Term Bond Index ETF (XLB), down 11.8% from Jan. 1, 2022, to March 31, 2022. Even short-term bond ETFs, like Vanguard’s Short Term Bond Index ETF (VSB/TO), have suffered losses, albeit a modest 1% for 2021. If these were stock losses, he said, it could be called a crash.
Return free risk?
In Jonathan’s post he quotes financial planner Ed Rempel who suggests that investors (even retirees) ignore bonds.
The Bond Bubble of the last 40 years is over, Rempel says. Over those four decades, interest rates fell pretty much every year; a “weird” confluence he says will not happen again, at least in the lifetimes of today’s retirees. Those who buy bonds today can expect to lose money net of inflation for the next 30 years. He says, “That’s the disaster.”
Rempel quotes stock guru Warren Buffett that bonds provide “return-free risk.”
Of course stocks can fail for extended periods as well. And stock market corrections have decimated retirees. An all-equity portfolio is a terrible and reckless idea for the retiree. That’s what the charts show me. And I witnessed many retirees who had their retirement plans destroyed by corrections in the dot com crash of the early 2000’s and in the great financial crisis of 2008-2009.
Pulling the chute on bonds
In the Globe & Mail (paywall), Dan Bortolloti offers – what to know before pulling the chute on bonds in your portfolio.
From that post:
In 2021, the FTSE Canada Universe Bond Index, a benchmark for the broad Canadian bond market, posted a loss of 2.5 per cent. A modest decline, but we were just getting started. This year is shaping up to be much worse, with the index already down over 10 per cent. To put that in context, the index’s data go back to 1980, and it has never posted an annual loss of more than 4.3 per cent (that was in 1994, when yields spiked from about 6 per cent to over 9 per cent).
Dan suggets that you treat bonds as a long term holding, just as we would with stocks. Also, yields are increasing. The Canadian bond market (ZAG.TO) (XBB.TO) now offers a yield of 3.3%. Dan also offers the most compelling reason to hold some bonds. They are a safety net for when stock markets crash.
Dan wraps it up (nicely) with …
So how should investors navigate the great bond bear market? By focusing on the long-term, rebalancing our portfolios, remembering the importance of diversification and avoiding the impulse to bail after short-term losses. In other words, the same way we weather difficult periods for stocks.
As a semi-retiree I still hold some bonds but in modest amounts. I hold a some ‘bond proxies’ by way of telco and pipeline stocks, plus I slant towards more defensive U.S. stocks.
There are many swirling risks in 2022. Here is a sensible post on CNN Business .
Lessons for the self-directed investor
Larry Bates, on MoneySense, lessons learned by DIY (do it yourself) investors.
On My Own Advisor Mark’s Weekend Reads offers wealthbuilding rules to live by.
On Cut The Crap Investing I offered this post that covered the simple but effective ETF portfolio for the accumulation stage. I recently created a how-to video as a set up for a portfolio building Zoom call. Yes, building wealth is “super-easy”. It should be one of the most rewarding things we do in life. And it can be simple.
And here’s the week in review from Dividend Hawk. It was a busy week with the earnings reporting season well under way. Hawk provides a nice wrap.
On Findependence Hub, will Budget 2022 hurt Canadian financial stocks?
Related post: Here’s my look at Budget 2022 on MoneySense.
Bob at Tawcan shares his favourite REITs for 2022. Earn rental income without the hassle. And of course, REITs are a very unique portfolio building block. They can offer inflation protection in many periods, and will often not move with the stock and bond markets, adding greater portfolio diversification.
We’re also looking at REITS on the Maple Money podcast.
On stocktrades.ca, Dan offers the top Canadian uranium stocks. I like the theme. Nuclear energy will likely be one of the most useful tools in the global green shift. I have been building a position in Horizons HURA.
Dr. Graham at FiPhysician looks at when we might de-risk the portfolio in preparation for retirement. Dr. Graham suggests we de-risk 5 to 10 years before we reach that retirement start date. I’d agree, and would cut that time period down the middle. We might de-risk several years before that start date. Good post.
Banker on Wheels cycles back to the Great Financial Crisis with a look at 3 movies based on those tumultuous times when the financial world as we knew it, almost came to an end. Did we fix it? I’m not sure about that.
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