If you were asked what is the most important metric in global finance – what would you answer be? The S&P 500? The US Dollar? Gold Something else? My answer is the US 10-year yield. Everything in finance is a function of this asset. For those less familiar with the game of asset speculation – this is a very important concept to understand. What’s more, its importance extends well beyond the stock market. To begin, the US 10-year yield is the proxy for financial instruments such as your mortgage, your car loan, student debt, your credit card etc. More than that – how this bond trades also signals investor confidence.
Asset Allocation
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Think About Adding Bonds
For me, 2023 has been a year of repositioning and managing risk. I lowered my exposure to large-cap tech (down to ~20% portfolio weight) and increased exposure to banks, energy and some industrials (which all trade at reasonable valuations). Today I will look at two bond ETFs – which I think could warrant exposure in your portfolio. In summary, with the US 10-Year yield back above 4.0% – it pays to add some longer-term duration.
Stocks Are Not Cheap
The S&P 500 has had a fantastic first 6 months of the year – up almost 15%. That’s a welcomed relief from the miserable 2022. But are stocks now too expensive? What’s the premium investors are being asked to pay? There are a couple of ways we can assess this. For example, we can compare the earnings yield against the risk free rate of return (currently around 5.5% and going up). And whilst it’s always good to maintain some (long) exposure to the market – we need think carefully about how much (and where)