Last week, August 14th, the yield on the 10-year US Treasury note fell to 1.58 percent, a number that was last reached in late 2016. Also last week, the yield on a 30-year bond fell to 2.03 percent, the lowest record ever. When this happened in 2007, the Great Recession followed.
So, why exactly is this happening? Investors are worried about a lot of things right now, including the US-China trade war and the fact that the German economy is not doing well. When investors are worried, they tend to start selling riskier investments, like stocks, and start shifting their money to investments like bonds, since bonds are safer than stocks. This helps them protect their money in case the economy takes a turn. Bond prices go up, and yields down, when people buy bonds all at once. Economists carefully monitor bonds and when yields are declining or there are radical moves in the bond market, they take it as a strong sign that a recession may be around the corner.
But it’s important to note that even as falling bond yields can be a sign of a weakening economy, there are other ways to gauge how the economy is doing, such as the job market and the consumer outlook ratings. Coincidentally, both are doing pretty great right now.
With all this uncertainty, is this a good time to start investing? The answer is YES! The thing is, there’s always going to be worse times and better times to invest, and since NO ONE can predict when those times are going to happen, one of the best techniques is to invest consistently (i.e. investing a certain $/mo automatically) no matter what’s going on in the economy/market, which is also known as dollar-cost averaging. Dollar-cost averaging takes the guesswork out of the process and allows an investor to buy more when prices are low and less when prices are high. In addition, dollar-cost averaging takes the emotion out of the process, which can be an investor’s worst enemy, gets rid of guessing, and makes investment a consistent habit. Dollar-cost averaging give yourself the opportunity to grow your investments at a steady pace over time. And when making consistent investments, it also makes sense to place those funds into a well-diversified portfolio. Like the saying “don’t put all your eggs in one basket,” diversification can protect you from big declines when the market does take a big turn by being invested at all times in assets that react differently in different markets (strong markets, weak markets, inflationary markets, deflationary markets, etc.).
Here at Invested Interests, we help you create a diversified portfolio with mutual funds that only contain companies that align with your values. That way you’re not only investing in your future, and keeping risk at a minimum if a recession happens, but you’re also aligning your investments with the socials issues you most care about.