From Kiplinger · · 1m 50s
Smart Ways to Invest for Higher Rates and Sticky Inflation
Bonds offer higher yields as inflation sticks, but investors must balance risk and returns.
In brief
Bonds offer higher yields as inflation sticks, but investors must balance risk and returns. Investors can gain 5% returns with bonds during rising rates by using ladders, short-term funds, or intermediate-term ETFs to avoid price drops. Originally reported by Kiplinger.
Bonds Offer Higher Yields
The 10-year Treasury note yield has increased eight times in six years, now at 5.3%.
Stocks Have Uneven Returns
The S&P 500 returned less than 5% in nine calendar years since 2000, including six money-losing years.
Treasury Bonds Guarantee Face Value
Treasury bonds pay face value at maturity, unlike stocks which fluctuate in value.
Inflation Makes Bonds Attractive
With inflation at 3%, $100 loses buying power to $74 in 10 years, so bonds offer better compensation.
High Demand for Borrowing
The U.S. government ran deficits over 5% of GDP 11 times since 2009, with federal debt exceeding $40 trillion.
Tech Companies Issue Massive Debt
Amazon, Alphabet, Oracle, and Meta issued $194 billion in bonds through July 2026, up from $108 billion in 2.023.
Bond Yields Drop for Stocks
The average S&P 500 dividend yield has fallen to 1.1%, below the 10-year Treasury yield.
Bond Discounts Rise with Rates
A 10-year Treasury issued in 2021 at 1.25% trades at $85 per $100 face value, a 15% discount.
Bond Ladder Strategy
Buy five bonds maturing every two years; reinvest proceeds to buy new bonds as they mature.
Short-Term Bond Funds
Fidelity Short-Term Bond (FSHBX) offers 4.5% yield with a duration of 1.9 years.
Intermediate-Term Bond ETF
Vanguard Intermediate-Term Bond ETF (BIV) has a 5.0% yield and 60-40 split between Treasuries and corporates.
Long-Term Treasury ETF
iShares 20+ Year Treasury Bond ETF (TLT) offers 4.9% yield with 25.9-year average maturity.
The headline
Investors can gain 5% returns with bonds during rising rates by using ladders, short-term funds, or intermediate-term ETFs to avoid price drops.
