Quarterly Conversations – 2024 Rates & Returns

Featuring: P.J. Gardner

In this video, AGW Principal & Co-Founder P.J. Gardner, CFA®, CFP®, discusses normalized yields enhancing investment returns, advocating portfolio reassessment for risk reduction and improved earnings potential. This conversation was recorded on February 1, 2024, and reflects information available at that time.

Audio Only


  • Normalization of Yields: AGW discusses the positive shift towards normalized yields, improving the investment landscape. This normalization offers better opportunities for earnings growth and diversified bond sector investments, marking a significant departure from the low-interest rates of previous years.
  • Investment Strategy and Diversification: The firm advises on the importance of reassessing investment portfolios, considering the potential for de-risking, and leveraging the opportunities presented by higher yields across different bond sectors.

Full Transcript

So with yields having normalized, investing has actually gotten easier. At one point during 2022, the 10-year treasury was below 40 basis points, or 0.4%. So, you would look at that component of the portfolio. And, I mean, mathematically, there was not a lot of earnings growth potential associated with that. Well, now rates, I’d say, entered somewhat of a normal zone, if you get back to 1870, over 60% of the time, the 10-year treasury is somewhere between three to 6%. And I’d say, on average, call it four and a half. So, kind of where we are today is not that different than where you usually are. And yet, because we’ve all been conditioned to zero interest rate policy and incredibly low rates, this looks pretty incredible.

And so, obviously, there’s a lot of other types of bond sectors. And so you can look at things like investment-grade corporate bonds and get something even approaching like 6%. Or you can even step further into risk, whether it’s in high yield or senior loans, and get nine 10%. And so another often used mantra during the bull market run-up was this cute acronym, TINA, there is no alternative. Well, I tell you today, there’s a pretty good alternative. I mean, a bird in hand, called 6%, investment-grade corporate bond, is a good alternative, particularly again, when inflation is on the decline, you’re earning a positive real rate.

And so what’s interesting, why is that it’s a lot easier to be an investor today. If you go back through time, and you think about where rates were, and again, rates have sort of been on a decline ever since the early ’80s. So if you go back into the ’80s, or even early ’90s, you could build a portfolio to generate a 7% return with 80-90% in bonds. And then, as you progressed, as yields continued to fall, investors had to take on more and more risks, take on more and more stock exposure to get the same 7% rate of return. In 2022, when I mentioned bond rates sort of hit the floor, you essentially had to be all in stocks, maybe, you know, a handful of bonds to generate that same 7% return. Well, today, as we look forward and what we believe capital markets will produce both in the stock and bond market, I think you’re back to where you could have half your portfolio in fixed income and still get that 7%. So there is an alternative. And it’s a great opportunity for investors to reassess their portfolios and consider de-risking, because if the goal was 7% or 8%, whatever the number was, you could probably get there with a lot less risk today. Certainly, then you could have in 2022.

AGW Capital Advisors is a registered investment adviser. Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed. Be sure to consult with a member of the AGW team, another qualified financial adviser, and/or tax professional before implementing any strategy discussed herein.