Bristlecone Blog

Stock market volatility returned in August, as a slowdown in the Chinese economy (and a steep selloff in Chinese stocks) reverberated around the globe.

A few of our clients have requested that we expand on our June post about rising rates. In particular, they’ve asked: “why not switch entirely to bonds with shorter maturity, in order to better protect against rising rates?” We see multiple reasons for not doing so:

For some time now, most market observers (ourselves included) have expected that the Federal Reserve would eventually raise interest rates from their historically low levels.

Speaking at an AARP event in late February, President Obama proposed tougher standards for brokers and other financial “advisors” who oversee retirement accounts such as IRAs and 401ks. Specifically, the White House wants brokers–whose investment recommendations are currently subject to a suitability standard–to instead be held to a more rigorous fiduciary standard.

Last October, we weighed the merits of combining both active and passive strategies in our asset allocation recommendations. Subsequently, the fund research firm Lipper estimated that in 2014, only 15% of active large cap equity managers outperformed the S&P 500.

While the Federal Reserve’s recently-concluded “quantitative easing” program has been a boon to several asset classes (including domestic equities, which are once again broaching record highs), the policy of deliberately low interest rates has been a burden to investors with large allocations to fixed income.