This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Bonds' Bad Returns Throw Savings Master Plans Out of Whack

Stocks in this article: MORN

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

NEW YORK ( TheStreet) -- It's one of the basic rules of investing: Divide your portfolio carefully between stocks, bonds and cash to find an ideal mix of risks and returns. But now, one part of that equation -- bonds -- is throwing the master plan out of whack.

The reason: Bonds now offer far more risk, and the prospect of lower returns, than at any time during the past three decades. Because of that, many investors may be wise to shift part of their bond holdings, perhaps a big part, into simple bank savings or other cash holdings. You won't make much money that way, but you'll protect your holdings from losses.

"The last 30 years you haven't had to make a choice in fixed income. It's given you great returns over and above inflation and low volatility. Now every dollar that goes into fixed income comes at a price of really reducing the expected return of the portfolio," says Michael Jones, chief investment officer and chairman of the RiverFront Investment Group, in a video interview with market-data firm Morningstar (MORN).

While many investors expect bonds to produce lower returns than stocks, they also assume bonds are safer. Ideally, they also march to a different drummer, producing positive returns when stocks are in the dumps. That reduces the portfolio's overall volatility, or risk.

But over the past three decades bonds have produced stunning returns, even though their yields, or interest earnings, have generally been nothing to brag about -- especially in recent years. With yields low, the big returns came from rising bond prices. As prevailing interest rates gradually got lower and lower, investors were willing to pay extra for older bonds that were more generous than newer ones. This process produced stock-like returns for many bonds and bond funds.

But now rates are so low they cannot go much lower, with the 10-year U.S. Treasury, for example, yielding just 1.75%. Bonds with shorter terms yield even less.

1 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs