Despite the fact that equity market have provided excellent returns for investors over the last 7 years, for fixed Income, the picture has been mixed. In the chart below, you can see the 7 year annualized total return of a theoretical balanced portfolio (60/40) with the S&P500 and the Bloomberg Agg. As you can see the bulk of the returns have come form the equity component, with bonds providing the bare minimum. Not only that, but bonds have been the main source of volatility and drawdown, particularly since the Fed started raising rates. And the prospects for this year don’t look compelling: valuations for equity are high and inflation may be picking up beyond the comfort zone for the bond market to deliver, particularly for investment grade. An additional diversified may be needed for the balanced strategy to continue working.
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