Be boring

Humans are so emotional. No wonder we suck at investing.

Let’s talk bonds. Okay, they’re boring. But owning a hunk of decent government or corporate debt can be an excellent strategy. You get interest. The debt never goes down so there’s a stability factor greater than owning stocks. Bonds have a history of moving in the opposite direction from equities, as a matter of fact. That can smooth volatility. Plus bonds shift around in price. So if you don’t hold them to maturity (and nobody does within a bond fund) there can be a capital gain involved. Or a loss.

Now this pathetic blog has yakked at you for the past 18 years (OMG) about having a B&D portfolio. The ‘B’ means balanced. As in maintaining about 60% in growth-oriented equities and the rest in fixed-income or safe stuff, like bonds.

The goal has always been to harvest about a 7% annual return from this blend of stuff, avoiding the wilder swings of the stock market. And it’s worked. Over the past 15 years this portfolio (and we have shared the asset mix with you many times) had pumped out an average of just over 8%. If you have a professional advisor (to keep your emotions in check) then after fees, you’re bang on with the target return.

By the way, the average annual inflation rate in Canada since 2011 has been 2.33%. The annual growth in incomes and wages over this same period has been 2.8% – slightly higher than Canada’s historic average of 2.58%. And after wild swings (because of interest rates and the pandemic) the average annual increase in real estate values over 15 years has been 4.5%.

So earning 8% on a B&D portfolio in the last decade and a half – or a little less after paying someone to protect you from yourself – has been a winning strategy. Especially so since investors would have avoided the stress of years when stocks laid an egg, or moments markets plunged – like when Trump delivered his silly ‘Liberation Day’ tariffs.

So, having bonds has worked. Yet most people see these things are deadweight or utterly confusing assets that are only good for paying interest – which has been minimal.

The last month has been a hard one for those who try to actively manage their own portfolios, making decisions based on recent headlines. Only weeks ago bond yields were spiking to levels not seen in two decades while bond prices were tanking. More than a few posters here expressed disgust, saying they were dumping their government debt and would never invest again.

Big mistake.

Lately the stock market has been wobbly, bond yields have plunged and prices roared higher. It’s all happened for good reason. And much was predictable.

Yields have dropped and prices risen because investors are fleeing into the safe and warm arms of the debt market where they can get an okay return but (most importantly) preserve capital. So the yield on benchmark US Treasuries has plopped well under 5%, pulling down returns in Canada, Europe and Japan.

Howcum?

AI enthusiasm is waning. The frontier labs, chip czars and hyperscaling data centre monoliths look increasingly like they have burned through too much cash, borrowed far too much money and have a diminished chance of reaping windfall profits. Companies like Meta Platforms and SpaceX are using new debt and stock issues to fund unbelievable spending, and investors are worried this is a bubble – or at the least a miscalculation. As a result, capital has been flowing out of AI, into value stocks and lots of bonds.

Second. France. And Trump. And the midterms. Ukraine. Putin and Marine Le Pen. Plus the whole rightist, protectionism, nationalist shift in Euro politics. Polarization is increasing. Anti-migrant sentiment is exploding. Racism is now widely accepted as a political tenet. And there are social explosions to come as a result – disrupting economies and hurting markets.

Third, despite higher oil and consumer price pressures, investors are worrying more about economic growth than inflation. If the AI bonanza peters out (or if it kills us all, after Muse empties your bank account) the impact of bad economic policies – like tariffs and government deficits – will be evident.

The bond market is pricing in some pain. A slowdown. Maybe a recession. Perchance a debt meltdown in Europe. An equity selloff. Furthermore, there are concerns the US president (who is nuts most of the time) will become more extreme in the final half of his mandate – and may even seek to overturn the results of the coming elections if the results are not supportive of MAGA.

Mr. Market has drastically cut the odds of another Fed rate hike, by the way.

The writing seems to be on the wall. ‘Stay safe’ it says. Stay balanced.

About the picture: “All dressed up and warm on a cool morning in old Montreal,” writes Jim. ‘This little fellow seemed to not mind the cold weather in his/her custom sweater. My daughter and I stopped in Montreal for a couple of days on our way home to Alberta. I wanted to get home before Danny shut the border. We toured Nova Scotia, stopped briefly in Lunenburg and even spoke to your guy, Sinan.”

To be in touch or send a picture of your beast, email to ‘garth@garth.ca’.

Source: https://www.greaterfool.ca/2026/10/23/be-boring/