Portfolio managers who traditionally use a 60/40 stock-to-bond split for clients say now is the time to consider buying more fixed income in the face of volatility. weather and the upcoming weakening of the economy. Both asset classes have had a rough year. Bond yields have rebounded recently, and some areas of the market are showing steady income for investors. Yields move inversely with bond prices. “Bonds are more attractive than they have been in the past, maybe more than a decade,” said Barry Gilbert, asset allocation strategist at LPL Financial. LPL Financial, adds that they make the most sense for investors who are more conservative or want to increase their income. in their investment portfolio. At the same time, stocks have been volatile and are likely to continue to plummet. That prompted investors to sell out of riskier assets in exchange for the safety of fixed income. The ratio between stocks and bonds has been falling since mid-August, Credit Suisse analyst David Sneddon wrote in a note Monday. “This suggests that we could see a more decisive downtrend and a more sustainable downtrend as investors move away from equities and eventually start moving into bonds,” he said. Which bonds make sense The threat of a potential recession is driving a shift to bonds, especially as inflation continues to be high and interest rate hikes from the Federal Reserve weigh on up stocks. “We think stocks are more likely to fall further as earnings are at higher risk in a recession,” said Michael Reynolds, vice president of investment strategy at Glenmede. In such an economic environment, market risk is considered reasonable. It also makes sense to turn to fixed income for protection. Historically, bonds have mitigated the risk and high volatility that stocks typically see. According to Anthony Saglimbene, chief market strategist at Ameriprise Financial, although this year has been tough for both asset classes, that doesn’t change that fact. “What has changed this year is that earnings look more attractive today with output rising again,” he said. “When you start getting 4% in two years and almost 4% in 10 years, those are attractive yields.” Currently, the 2-year US bond yield is 4.14%, while the 10-year yield is 3.75%. Bonds with shorter maturities are being favored by investors due to their higher yields. For example, yields on one-year and three-year US bonds are both above 4%. “We are putting our weight on short-term fixed income,” Reynolds said. “We are also less exposed to rate hikes.” He notes that the company’s sweet spot is between two and three years, as that’s where they find the best value. People with more bonds in their portfolios will want to lean more on the shorter end of the yield curve for the most protection and income, according to Gilbert, according to Gilbert. However, investors with a more traditional 60/40 split will probably want to hold the term for about six or seven years, he said. Of course, if there is a recession in the next few years, there will be a reasonable time to strengthen bonds even more and look for investments further up the yield curve. “In a recessionary environment, you want a bit of a term, and if interest rates go up, you can get big rewards on those bets,” says Glenmede’s Reynolds. Now, he notes, that bet is a bit premature because interest rates are likely to be a bit higher. Other Areas of Fixed Income Certainly, investors can be wary of bonds as they have also been hit hard this year, leading to price declines on both sides of the 60-plus portfolio. /40. For those looking for income but don’t want to play too much into bonds, there are several other options, according to Rob Burnette, CEO and financial advisor at the Outlook Financial Center in Troy, Ohio. That includes blue-chip stocks that pay solid dividends like IBM, or consider other investments like preferred stocks or structured notes. Preferred securities are fixed income instruments that contain some of the qualities of stocks and bonds and generally offer higher yields, while structured bonds are debt issued by financial institutions . It can also make sense to have a larger cash holding on the sidelines ready to go back into the stock. “It’s good if there’s a little bit of dry powder on the sidelines in an environment like this, you never really know what kind of opportunity will arise,” Reynolds said. It could also be a good time to buy stocks and bonds, said Gilbert, and head back towards the 60/40 split. “You should look at the opportunity when it feels worst to do it,” he said. It would make sense to rebalance Investors looking to position themselves appropriately in the coming months may not have to do much to bring their portfolios in line, given the year-to-date sell-off in stocks. . However, you should regularly reassess your bond, stock, and cash balances to ensure your allocation meets your goals. Many investors may find that even if they don’t make big gains this year, they are still set up for long-term success and shouldn’t make any emotional changes. “A diversified portfolio continues to be the best path for investors,” says Saglimbene.