Insights - Taxes

One of the most important questions to ask about any investment account is: “what percentage of the account is allocated to equities (stocks)?” This is an important question, in general, because equity exposure will increase the volatility of the account. In a strong bull market (like we are experiencing currently), equity allocation is a major driver of positive returns relative to fixed income (bonds) or cash. During a stock market correction (decline), equity allocation will negatively impact performance relative to bonds or cash, therefore, in both instances contributing to large variability of the account value. It is important to note that these points are generalizations, not rules. There are exceptions. For example, a highly speculative fixed income investment like a junk bond can be more volatile than a high quality defensive stock. Generalizations are best applied to broad market indices (e.g. the S&P 500 and the U.S. Aggregate Bond Index) or baskets of well-chosen high-quality stocks and investment grade bonds. Because of the increased volatility of equities, they have an especially significant impact on any account during bull and bear markets. While past returns are no guarantee of future returns, equities have also delivered higher returns than fixed income over the long term historically. In the WBC client portal, you can view the performance of your holdings by asset class (Equity, Fixed Income, others) by clicking “Reports” along the top bar, then selecting “Account Performance” under “Performance” and scrolling down. Comparing Equity and Bond Returns Two of the most widely used performance measures for US equities and US investment grade bonds are the SPDR S&P 500 ETF Trust (Ticker: SPY, which tracks the S&P 500) and the iShares Core US Aggregate Bond ETF (Ticker: AGG, which tracks the Bloomberg US Aggregate Bond Index). Based on these two measures, as shown in the table below, equities have outperformed fixed income significantly. On a total return basis, equities have outperformed over the last 1, 3, 5, 10 and 20-year periods. Holding the S&P 500 for the last 20 years would have earned a 677% total return. This return is 598% higher than the total return from the bond index. 

With inflation easing and the US economy showing some signs of weakness, the market is now turning its attention to a potential rate cut.

..by mid-May signs of cooling inflation ignited a bond rally. Bond prices rose sharply and pushed down the yield on the 10-year US treasury note.

The Federal Reserve's fight against inflation appears to be finally paying dividends. Here is a recap of yield levels this year.

Interest rates continued to march higher in the third quarter. In July, the Federal Reserve raised the Fed Funds rate for the tenth time...

Interest rates resumed their uptrend in the second quarter after having declined earlier this year. The yield curve remains extremely inverted.

Here is a recap of yields in the first quarter. The Fed is caught between maintaining financial market stability and controlling inflation.

Signs of stronger growth could hinder the Fed's effort to cool inflation. Prices need to slow more significantly, or higher rates may be in store.

The bond market continued to surprise investors during the fourth quarter. These are just a few strategies to protect against higher interest rates.

Markets, economists and policymakers have been fretting about inflation for months, worried that the trillions of dollars being spent could overheat the economy and send prices soaring. URL

March PMITM data indicated a substantial increase in business activity across the U.S. service sector, and one that was the steepest for almost seven years. Contributing to the marked upturn in output was the fastest expansion in new business for six years, reflecting strengthening client demand.