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Simon Brown: I'm currently chatting with Troni Komako, Fixed Income Portfolio Manager at Ashburton Investments. Mr. Troni, thank you for your early morning. You recently published a memo pointing out that taking higher risks can yield superior returns. But strangely, over the past year or two, all bond indexes have outperformed stocks, outpaced inflation, and I have to be honest and say that bonds are generally considered less risky than stocks. yeah. It's an interesting time to get into fixed income and try to earn income from your investments.
Torhoni Komako: Yes, Simon. of course. I think bonds are a very good option for achieving these investment goals, especially when you consider the stability and predictability of income generation, but in the article I said that stocks are very volatile. We emphasize that this may be the case. I don't know what will happen.
The option to diversify your portfolio with fixed income products can reduce your overall portfolio risk a bit. Therefore, it helps in capital preservation for those who want to protect their principal investment. This helps in risk management by simply hedging other risks such as inflation risk within the portfolio. It also includes the liquidity risk investors need, especially now that inflation is starting to reach his 5% level.
Simon Brown: I accept your opinion on that and [on] Inflation. We expect inflation to be probably around 5% over the next two years. Bond funds and money market funds will likely both perform well above 5%. This again means that there are still good opportunities for investors to earn real returns in the fixed income money market space.
Torhoni Komako: That's absolutely true. In a world where inflation is starting to pick up, if inflation peaked at about 7.8% a few years ago, here's what we would be looking at today in a world where inflation is starting to pick up.Easy results obtained by having [to] Like you said, invest in money market funds, traditional bond funds, where you don't really have to take any risk. You can just say, “I'm going to invest my money here, give me a range, and I'm going to enjoy a real return of 4% to maybe 2% to 5%.” So, as I say, it really depends on the needs of the investor.
So I think as investors we need to be clear about what our goals are. Don't be greedy and say, “I want my boss to come back.'' But if your goal is to have more certainty without considering volatility, you can achieve it with simple funds like money market bonds.
Simon Brown: You make a great point here. I said it twice, “the right person.'' Of course, the right person would be a retiree, i.e. a retiree who needs a retirement fund, but it could also simply be a risk-averse investor, i.e. someone who doesn't like volatility. Maybe you're trying to save up for a down payment on something like a house. It's not just the cliché, “You're a retiree, so a fixed income is for you.” It's a much broader range. And of course, there's the classic 60/40 portfolio.
Torhoni Komako: That's true too, yes. As you say, investors have a variety of needs and goals beyond their life stage. So, as you say, bonds aren't just for conservative investors who want to prioritize income streams. This is great for income-oriented investors who just want a regular stream of cash flow, as well as aggressive investors who prioritize long-term value growth and are willing to acquire high standards in pursuit of high returns. This is also true for growth investors.
As a result, you may be a wealth-preserving investor who has already accumulated significant wealth but prefers to prioritize your wealth over pursuing aggressive goals. That's why the world of fixed income has securities and investments that offer stability, liquidity, and long-term growth.
Simon Brown: And what you mentioned was the graph you put in that I was actually quite surprised by. We mentioned volatility here, you talked about the volatility of the all-stock index and stocks. That is the nature of the beast.
The bond index, All Bond, was surprisingly volatile. [me] I'm watching this as a beginner. But traditional types of income funds at the time were doing just fine. It's part of “getting a good night's sleep.”I guess I hadn't thought of that, but in hindsight I have to say it makes perfect sense – bond funds are probably one of them [least] volatile [ones] It's not just good old cash in the bank.
Torhoni Komako: it's true. The long-term chart will be very smooth, but it could be a timing issue. As an investor, you may want to release your capital or investment during the investment period as shown in the chart. Therefore, it may happen sooner than expected.and [with] At that early point, bonds and even stocks may be falling significantly, or they may be rising. Either method is fine. The point is, investing in a more traditional bond fund will give you a much smoother return. You won't be so stressed out, you'll sleep better at night like I said, and you'll get a good return to buy a house or some kind of deposit.
Simon Brown: Or, as you say, just an income to live on.
Leave it as is. Thank you to Truhoni Komako, Fixed Income Portfolio Manager at Ashburton Investments, for this early morning.
