The U.S. stock market has been so volatile lately, like the toddler on Krispy Kreme’s. Screaming for a minute, giggling for the next, no one can calm it down without anyone saying.
That’s why we don’t try to time the market. If you sold on April 4, after the S&P 500 crashed, when it rebounded 9.5% on April 9, you would lose 6%. Then, try to get in again and you will lose more money again when the market crashes on April 10.
As frightening as stock market fluctuations, no one is looking at the bond market, which is even more terrifying because what happened there lately is more important, arguably the reason why Trump blinked last Wednesday and lasted 90 days on tariffs.
This is not surprising. I mean, bonds are boring compared to stocks. If you mention the term “Ten Years of Finance Profits” at the party, most people’s eyes will be upset. (Unless it is a fire party, in this case, nerdgasms abound)
Bonds are like old boilers in your basement. Stable, predictable, and mostly ignored until they suddenly collapsed, and then the financial war.
That’s what happened last week, as bonds on 10-year U.S. Treasury bonds briefly soared to 4.5% and retreated only after announcing a suspension of tariffs.
Why is this important?
Bond yields are the puppet strings behind everything – your credit card interest, student loans, car payments and mortgages. Bond yields are inversely related to bond value. When the value rises, the output drops and vice versa.
A sharp surge in yields means the value of bonds has fallen due to the massive sell-off of Treasury bills. And, when this happens, debt becomes more expensive, not only personal mortgages and loans, but bad news for Treasury bonds. When interest on government debt is so high, the financial end of the world happens, and almost every dollar of tax is spent on repaying interest.
Then why does this happen?
There are some theories about why this happens:
- Margin calls cause investors to sell bonds to cover bonds
- Inflation worries, driven by tariffs
- China is a large holder of U.S. bonds, selling them to recent tariffs
- As a safe haven for global capital, the United States loses confidence
For whatever reason, the sell-off of Treasury bonds, even fearing Trump, played golf the week before despite the stock market plummeted.
This is what he said:
“The bond market is very tricky, I’m looking at it,” Trump told reporters. “The bond market is beautiful now. But yes, I saw people a little discomfort last night.”
He went from insisting on “my policy will never change” to browsing back and holding the tax for 90 days, as the surge in bond yields will not only increase interest on national debt, but also affect mortgage rates in his real estate empire.
The stock market has always been the biggest headlines, but the bond market has swept the world.
No wonder James Carville, a political adviser to Bill Clinton once said: “I used to think that if there was a reincarnation, I wanted to come back as president, pope or .400 baseball batsman. But now I want to go back to Bond Market.
So, what are the gains from all this?
Well, after retiring for 10 years since 2008 and investing, we have experienced enough financial disasters in the market (2008 – Strict Financial Crisis, 2015 – Oil Crisis, 2018 – Government Close, 2020 – Pandemic, 2022, 2022 – Ukrainian Invasion) to understand that this panic sales and trying to time the market’s answer is always the answer. A globally diversified portfolio pays dividends and interest on cash mats to help you have a good night’s sleep without worrying about the basic value of your portfolio. It’s easy to call yourself an investor when everything is going up, but separate amateur and veteran investors are bear markets, like that.
Here are some other lessons we’ve learned from past bear markets:
Avoid debts like plague
If you have a team, pay as much of your mortgage as possible. Debt is a ball and chain that disappoints you. In times of economic uncertainty, don’t take on mortgages while worrying about unemployment, thereby adding fuel to the fire. Trump is not afraid of a stock market crash because he knows it will eventually recover, but he is afraid of the rate at which debt rates rise.
Team rent, it’s not the time to buy a house. Take advantage of lower rents, like in 2020. Flexibility is a superpower. I would rather have a portfolio that brought me dividends and benefits than a house that tempted my net worth, didn’t pay me to own it and spent a sum of money.
Diversity, diversity, diversity
When you invest in a single stock, buying DIP won’t work because the stock may be zero during a bear market as the company goes bankrupt. But that doesn’t mean every company in the index will. As companies depart from the index, they are replaced by the new index. That’s why we invest in index funds rather than individual stocks. Having a diversified portfolio saved us in 2008, and many other markets today are down, and the same market continues.
The same is true for global diversity. Over the past two years, the S&P 500 has risen in double-digit numbers, it seems like 100% of U.S. stocks are a good idea. But now, tariffs are changing what we know about global trade. Countries are reorganizing and prioritizing dependence on the United States, but trading each other. We don’t know how all this will get rid of, but global diversification will mitigate your risk only depends on the United States.
Independent of location
Never underestimate the power of an independent position. During 2008, a world education community was established. Parents are worried that parents who earned during the big financial crisis sold everything to travel and educate their children. They started businesses online, allowing them to reposition from high cost of living to low-cost places, while reducing stress and spending more time with their kids.
The less you have to do with expensive positions, the more you can rotate and manage spending during a bear market. Who knows? You may already be FI and don’t know or more than you think.
What do you think? What is your backup plan in the bear market? Share your tips with other readers so you can help them through this uncertain time.
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