Bonds remain stable investment amid 1Q decline

The first quarter of 2021 was positive for U.S. stocks, but bonds declined amid the rise in interest rates.

With the dramatic spike in interest rates discussed here, bonds performed poorly in the first quarter of the year. The Barclay’s Aggregate Bond index was down more than 3% in the first quarter, a large loss for bonds in a short timeframe. We regularly remind clients, however, that a “bad” result for bonds is a lot better than a “bad” result for stocks. While bonds incurring an interim fall of 3% during the course of a year is fairly extreme, stocks having an interim fall of 14% at some point during the course of a year is the historical average. The good news for prudent bond investors is that performance pressure on bonds is likely to recede no matter which way interest rates go from here:

  • If interest rates decrease a bit, bond prices would gain support from the decline in rates (as bond prices go up when rates go down, and vice versa).
  • If interest rates stabilize at/near current levels, most of the negative price impact of rising rates is already past and short/intermediate term bonds will be resetting to the higher rates fairly quickly, thus providing more income going forward.
  • If interest rates continue to rise, we could see a further decline in bond prices (although, we believe that this pressure will be somewhat muted as discussed above). However, if rates were to rise further, because of the relatively short-term nature of our managed bond portfolios, the incremental downside should be limited, as the benefit of higher rates should happen fairly quickly as the underlying bond holdings turnover.

In addition to providing stability, we often view bonds through the lens of “dry powder” that can be used to take advantage of stock market corrections when they occur. Again, the stock market experiences, on average, a 14% correction in a given year. Since bonds tend to hold their value when stocks sell off, the proceeds from bond sales can be used to buy stocks in such circumstances.

As noted in previous commentaries, we believe that bonds will continue to be a challenging asset class in the coming years, but we believe that challenge stems more from a continuation of low interest rates than from the threat of inflation and rising rates. These concerns are why, for most of our portfolios, we have generally (a) avoided long-term bonds in our managed strategies and (b) employed active managers that are not benchmark constrained and can take advantage of interest rate volatility.

 As we move through 2021, there are a number of lingering issues that will garner headlines and inevitably lead to volatility in the markets. Ultimately, we believe that the markets are reasonably positioned, and our overall market outlook leans optimistic.

Eric Toole, MBA, CFP(R), is a Principal at Antares Wealth Management. He can be reached at etoole@antareswealth.com.

Recent Articles:

Follow Antares CPAs:

Succession & Transition Strategies

Creating a successful succession plan is about protecting the future of a business and/or brand and ensuring there is a strategy in place to ensure your business continues to thrive.

After years of investing time, money and other resources, it’s imperative to prepare for this next stage in business and life. Poor planning can increase risks for stakeholders and tarnish legacies. Let’s make sure the next generation is well-equipped and ready to take your life’s work and family legacy to an even greater level of success.

Each situation is unique because the needs of each one involved are unique. We carefully review each opportunity to determine how best to structure a transition while meeting your goals, complying with any brand licensing polices and minimizing the tax implications of the transfer.

  • Next generation succession planning
  • Retirement planning
  • Wealth management

Let's get started.

Call us at 770.785.7855 Or email hello@antaresgroupcpas.com

Technology Services

Antares Group’s technology team provides convenient hardware and software support, along with comprehensive cloud accounting services with 24/7 access to up-to-date financial information exactly the way you want it, on any connected device, with a customizable dashboard interface. We use best-in class cloud accounting platforms and software including Sage Intacct, Bill.com and robot process automation (RPA) with integration capabilities with some of the leading point-of-sale, payroll, and business operations management software programs.

Cloud accounting is just the beginning; Antares Group’s experienced technology team also performs system evaluations and makes recommendations for products and services that will help your business run more efficiently, as well as protecting your information and infrastructure with robust security options. Using the right technology for automation will simplify your life and keep your valuable data safe..

  • Technology and security optimization
  • Complete cloud accounting services
  • Computer troubleshooting assistance with remote and onsite repair

Let's get started.

Call us at 770.785.7855 Or email hello@antaresgroupcpas.com

Business Planning & Valuation

An accurate understanding of your company’s current value and financial viability is vital for achieving business success and the launch pad to boundless possibilities in the years to come. Realistic valuations are essential for long-term strategic plans, business successions and expansions, gift and estate planning, and a lucrative retirement package. Planning for where you want to go in the future is what our business and tax advisors do best. Whatever your goals, we are here to provide you with the right plan and insightful guidance to achieve it.

  • Trend reporting and analysis and business valuation
  • General business and start-up consulting
  • Major reinvestment planning
  • Cash flow projections

Let's get started.

Call us at 770.785.7855 Or email hello@antaresgroupcpas.com

Back Office Solutions

In such a fast-moving business environment, business owners need every advantage to succeed. Improving efficiency should be an ongoing part of your strategy for financial success, empowering you to make continuous improvements.

Whether your business is a single location seeking to grow effectively and sustainably, an established franchise brand adding new locations, or something in between, Antares Group provides a suite of back office services and the financial expertise to help business owners and managers achieve their operational and financial goals. In the process of supporting your essential back office operations with practical solutions, we analyze the function and effectiveness, looking for inefficiencies and potential liabilities, offering valuable insights for owners and managers.

  • Daily deposit verification and online banking monitoring
  • Process invoices and code general ledger accounts
  • Process vendor payments and file 1099s
  • Prepare and file sales and use tax returns
  • Reconcile bank, credit card and cashless sales accounts

Let's get started.

Call us at 770.785.7855 Or email hello@antaresgroupcpas.com

Tax Advisory

Minimizing your tax burden is a year-round strategy; planning for and preparing complex business and individual tax returns is where Antares Group excels. Beyond simply helping you fulfill basic tax obligations, you can rely on our tax advisory team to keep you informed of ever-changing regulations and keep you in compliance. We conduct regular reviews to make sure all methods of reducing your tax liabilities are being used. We routinely assess your personal income tax situation and cash flow to guard against the unexpected. This ongoing strategic analysis empowers you to maximize tax savings and capitalize on new opportunities.

In addition, we provide advisory services for new business startups, acquisitions, and dispositions. Through careful analysis, we help clients determine the best structure and make the process as seamless as possible.

  • Business and individual year-end tax returns
  • Personal property, gift, and trust income tax returns
  • Fixed asset setup and maintenance
  • Annual tax planning and preparation

Let's get started.

Call us at 770.785.7855 Or email hello@antaresgroupcpas.com

Cloud Accounting

Whether you run a small closely held business or a large franchise operation, maintaining a firm grasp of accounting and bookkeeping can be challenging. Between managing staff and overseeing daily operations, there is not enough time to dig into the books and make sense of the financials. You need to know the facts and the implications. – having precise, up-to-date information at hand means you always know your financial position so you can make informed decisions that keep your business moving forward.

The financial experts at Antares can create a custom menu of accounting and tax services perfectly catered to your business needs, including accurate and timely financial statements and reports, so you are always prepared to respond quickly to changing and challenging circumstances. Along the way, we provide clear feedback and financial guidance to help you predict trends and recognize issues, then make the necessary adjustments to sustain cash flow throughout the year.

  • Timely preparation of financial statements based on your particular needs
  • Complete preparation of sales, payroll, inventory, accrual, and prepaid journal entries
  • Meticulous monthly bank and credit card reconciliations

Let's get started.

Call us at 770.785.7855 Or email hello@antaresgroupcpas.com