Many investors are turning to short-term investments, particularly ultra-short bond funds, amid persistent concerns that the equity market is headed for an inevitable downturn and long-term bonds like the 10-year treasury are not providing the diversification benefits that they have provided within portfolios historically.
Stock market returns have been strong over the past decade, with the S&P 500 Index delivering double-digit gains for most of the past decade. The last several years have been especially robust, buoyed by the "Mag 7" technology stocks and the AI boom.
"Investors have enjoyed one of the strongest equity markets in history, and they're starting to get worried about downside risk," said Christopher Coolidge, chief investment officer at Brookwood Investment Group in Phoenix.
As investors take some money off the table, bank deposits are paying next to nothing with an average yield well under 1%, and long-term bonds are losing money in an uncertain rate environment. The iShares 20+ Year Treasury Bond ETF (TLT), for example, has posted an average annual return of negative 6.7% over the past five years, while its 7-10 Year Treasury Bond ETF (IEF) has posted an average annual decline of 1%.
