Why My Signal System Uses Bonds

In this video, I’ll show you why my Signal system uses bonds for safety.

Each permutation of my Sig system uses just one stock fund for growth and one bond fund for safety. For background on how the Sig system works, please see my video, How My Signal System Works.

In recent years, and again now, pundits have warned about a bond market crash. For an example of this, see my video, Should You Avoid Bonds, which defuses the latest warning from Bill Gross at Janus.

These bond warnings have led some investors to abandon bond funds in favor of riskier assets or dead cash.

But bonds have been around a long time, and have served their main purpose as income-providing, safe alternatives to stocks for many decades.

Let’s take a look at the history of stock bear markets and the bond market, with help from Ben Carlson, the director of institutional asset management at Ritholtz Wealth Management.

In a February 6, 2017 article on Bloomberg View, Carlson provided this table listing the 15 bear markets in the S&P 500 since World War II:

[Chart shown in the video, at 2:18.]

Would bonds have helped you through these bear markets? Absolutely.

Carlson provided this table listing the performance of 5-Year Treasuries through those same 15 bear markets:

[Chart shown in the video, at 4:05.]

This historical relationship between stocks and bonds is why they are the only asset classes I use in my Signal systems, and it will keep working.

Do not sell your bonds. Use them the way I do, to keep buying power ready for deployment into stocks during the next stock-market bear. It will greatly improve returns.


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Thank you for watching!

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