Writing in The Wall Street Journal, Jason Zweig (one of my favorite financial writers) drives home a powerful message to investors around the world. This is a message that must be heard loud and clear.
Worldwide, $13 trillion in debt yields less than zero; in “normal” times, when those bonds might have yielded 3% or so, investors would have earned roughly $400 billion on them annually. Now investors are spending, rather than earning, tens of billions of dollars a year to hold those bonds — much as you might pay a storage company to keep your heirlooms safe for you.
Nevertheless, even at today’s emaciated yields, bonds remain a powerful hedge against declines in the stock market, says Fran Kinniry, an investment strategist at Vanguard Group. Treasury bonds rose 1% on June 24, when the British vote to exit the European Union knocked U.S. stocks down almost 4%.
With such slim prospective returns on offer, you will have to lower your expectations and raise the amount you save.
“Investing is always a partnership between you and the markets,” says Mr. Kinniry. In the 1980s and 1990s, when stocks and bonds alike racked up double-digit average returns, the markets did most of the work. “But now you are going to have to be the majority partner,” he says.
In this weird world, if you want to have more money, you will need to save a lot more money.