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Stocks and bonds fall, what do you do with your money?

So far in 2022, both the stock and bond markets have posted severe losses. You have to go back to 1969 to find such a market. According to BlackRock data.

The S&P 500 is down nearly 24% year-to-date, while the Bloomberg US Aggregate Bond Index is down about 16%. It will be the first time in decades that both indices end the year in the red.

And for investors who hold both stocks and bonds, that’s not how a blended portfolio should work.

“Equities and bonds are usually inversely related,” says Kevin Brady, certified financial planner and vice president of Wealthspire Advisors in New York City. “Historically, bonds have provided a ballasting effect when stocks have fallen. Not this year.”

With losses piling up in the two most common asset classes for retail investors, “there wasn’t much room to hide,” says Brady.

Why it’s been a tough year for both stocks and bonds

As history shows, it takes something pretty big to happen for stocks and bonds to fall in the same year. In 1931, the currency crisis forced Britain to abandon the gold standard, and in 1941 the United States entered World War II, throwing markets into turmoil.

Last year as this happened provides the closest analogy to what investors are seeing today. Rapid inflation in the mid-1960s forced the Federal Reserve to raise interest rates to cool the economy. what happened todayThe economy plunged into recession in 1969, a year of negative returns for both stocks and bonds.

Financial experts aren’t sure if the current economy is going into recession (or if it’s already), but the same forces are acting on stocks and bonds. Fear among investors that the Federal Reserve’s actions could trigger an economic recession has driven many to sell stocks, pushing prices down.

At the same time, rising interest rates have a significant impact on bonds. As bond prices and interest rates move in opposite directions, the Fed’s moves have devalued bond portfolios.

“The Federal Reserve is intentionally raising interest rates to combat inflation, which is generally unhelpful for investment portfolios,” said Steve, head of fixed income exchange-traded funds at BlackRock. Ripley says.

Fixed Income Investors: ‘We have more options’

It is impossible to know how the economy and monetary policy will change in the short term. If inflation continues to rise, the Fed may continue to raise rates, which could push bond prices down.

Many experts believe much of that carnage is behind us, and now could represent an attractive opportunity for fixed income investors, Ripley said. “Most economists believe the Fed will succeed in cooling the economy,” he says. “In this view, bonds look attractive. We haven’t seen yields at this level in years.”

Over the past few years, when interest rates have hovered near zero, investors have had to buy riskier bonds to get a reasonable return on their investments. But with recent rate hikes, we no longer need to be so critical. His two-year Treasury bill, a short-term Treasury bond backed by the full faith and credit of the U.S. government, currently yields 4.45%. A year ago, similar bonds yielded him less than 0.5%.

Many other types of bonds also offer high yields, allowing investors to find a variety of sources of return in their portfolios without the potential downsides of riskier investments such as stocks. .

Equity Investors: Put Your Investments Up for Sale

A 20% decline isn’t all that unusual when it comes to equity investors.In fact, it was his CFRA chief investment strategist Sam Stovall who “Horticulture” bear marketSince 1945, there have been 10 drawdowns of 20% to 40%, but the market has returned to its peak after an average of 27 months.

In other words, this happens all the time in the stock market. And if history repeats itself, stock holdings could return to their previous highs relatively quickly.

In the meantime, sticking to a long-term strategy and investing in a consistent clip can help you add to your investment when prices are trading lower.

Christine Benz, Director of Personal Finance and Retirement Planning at Morningstar, said:

One change you shouldn’t make, especially after a year of nothing doing well in your portfolio, is betting big on something that’s been doing well lately. Selling a diversified portfolio in favor of recent high-flyers, including investments in energy and commodities, is “a recipe for disaster,” Benz says.

This article has been updated to reflect Steve Laipply’s clarification on bond yields.

Correction: An earlier version of this article incorrectly named the Bloomberg US Aggregate Bond Index.

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