Is It Time For Fixed Income In Retirement Accounts?

Mar. 21, 2012 10:35 AM ETJNJ, KO, MRK, PG, WMT, XOM16 Comments
Doug Carey profile picture
Doug Carey

What a difference six weeks can make in our volatile markets today. The 10 Year Treasury was yielding 1.8% in late January. Today it stands at 2.35%. Is this the beginning of the long-awaited upward move in interest rates? With yields higher, is it time to move more money into fixed-income, especially longer-term fixed-income?

It is important to keep in mind that although yields are up by over 0.50% recently, there is a lot more room for rates to rise from here.

(Click to enlarge)

The last time we saw a sustained increase in yields was in the late 90s. From 1998 through 2000 the ten year yield rose by over 2%. This was enough to knock nearly 15% off of the total return of a 10 Year Treasury bond. Let's look at just how the total return of a ten year bond would fare today under various interest rate movements:

Interest Rate
Movement (%)

One Year
Total Return





















Looking at the scenarios when interest rates rise, we see how bad it can be. If the 10 year simply goes back to the levels that existed in the 2000, investors would see a -32% return on their investment. For a 30 year treasury bond, this scenario would produce about a -45% return.

I believe there is still way too much risk in longer-term fixed-income vs. the potential reward. The U.S. credit rating was notably downgraded by S&P last year for the first time in our country's history. It's obvious to most of us who follow the country's debt problems that the U.S. is no longer a AAA country. No country with $1.5 trillion deficits and Debt/GDP above 100% should be considered AAA; not even the

This article was written by

Doug Carey profile picture
Doug Carey is the owner and founder of WealthTrace. He has over 21 years of experience in the financial markets. He has a masters degree in Economics from Miami University in Oxford, Ohio and a B.S. degree in Economics, with an emphasis in Finance, from Ball State University. He also holds the Chartered Financial Analyst (CFA) designation.Mr. Carey began managing money in 1997 when he became a portfolio manager for National City Bank helping to oversee over $10 billion in assets. He managed money for pension funds, 401K funds, mutual funds, large companies, and endowment funds. He has also been managing money for families for over 13 years. Before starting WealthTrace, Mr. Carey helped build a financial software company where he designed and created software to help portfolio managers and investment professionals analyze and manage portfolios and securities. Mr. Carey also offers one-on-one financial planning and investment management services through our Registered Investment Advisor (RIA) firm. We are fee-only and do not work on any commissions so our goals are aligned with yours. Because we do everything online we can charge much less than standard advisors for our services.

Recommended For You

Comments (16)

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.