The Advocates Mail Bag

By Kurt Box of The Advocates


Dear Kurt,

My mom’s and my brother’s financial advisors recently advised that they sell their bonds and put the money in cash/CDs.

Can you help me understand the logic behind sell vs hold? Which is the better approach at this time? Should we be making adjustments to our bond holdings?

TA Client


TA Client,

Thanks for the reply and good questions!

First off, this is very knee jerk reaction and could very well be poor timing. “Going to cash” is akin to trying to time the bond market, which just like timing the stock market, almost never ends well. Additionally, this is after rates have already increased, not before, so you take the losses but don’t participate in the longer term benefit of having higher rates.

To address your question surrounding the best approach to bonds at this time, unlike stocks, which have valuation profiles they return to over time (i.e. there is some predictive nature to them), guessing where rates are going in the short and long term is just that, guessing.

“Experts” have been predicting rising rates and runaway inflation since we printed all that money during the financial crisis in 2008-2009. At some point they were bound to be right. A blind squirrel eventually finds a nut!

However, if you’d spent the last 12 years in cash waiting for rates to rise you would have missed out on a lot of returns.

Further, you would now have to make the call (after 12 years) that rates have peaked and are likely to be flat, or even down, to finally buy to invest your cash back into bonds.

Our approach is not dictated by guessing what rates will do. Our Core Bond holdings are a direct result of what happens on the Growth side of the portfolio. When we are light Growth (as we are now due to valuations being high and momentum being negative) we will be heavier in Defensive, or Core Bonds. This is what holds anything not in Growth (Stabilizers always stay at 10%).

So should we be making adjustments to our bond holdings at this time? No, we are good where we are and believe that in a recession (if one were to occur), which would hurt Growth badly, bonds will be a saftey haven as they have been in the past.

Hope this helps!

Kurt Box, CFP®, AIF

Partner / Chief Investment Officer