The Role Of Bonds In Asset Allocation
Overall, said McCormick, bonds of various types will continue to provide some income, some safety, and some diversification. “It’s just difficult to measure exactly the magnitude of how effective they will be as a hedge” against market volatility, he conceded.
Toward the end of the 45-minute discussion, Lee asked if the traditional 60%-equities-40%-bonds-and-cash allocation still made sense. Wander replied that, nowadays, it’s reasonable to “augment a traditional 60-40 mix with additional strategies,” though he did not specify what those might be. But he quickly added that if you’re going to challenge a tried-and-true method because it’s underperformed in the near term, “that is a mistake,” he said. “As bad as markets have been this year, we’ve seen way worse [due to] a whole series of other things that feel a lot more onerous than the current environment.”
Wander said he expects a rally in government bonds that will revalidate the old 60-40 strategy, though when exactly is anyone’s guess.
McCormick nodded, emphasizing that we are in a period of “renormalization.”