COVID-19 and Real Yields: Portfolio Impacts and Implications

COVID-19 and Real Yields: Portfolio Impacts and Implications

The American College of Financial Services
October 2, 2020

Since hitting the United States early this year, the COVID-19 pandemic has taken the financial planning profession and investors on a wild ride. While the stock market has rebounded from its spring lows, many measures of economic performance still remain at levels not seen since the Great Depression. For financial advisors, especially those focusing on wealth management strategies and retirement planning, getting on top of the latest waves amid a sea of change has become a priority. A big part of this involves understanding how market impacts have suppressed bond yields, and how the Federal Reserve's (the Fed’s) current policies could prove to be double-edged swords for retirement income planning, portfolio management, and other client concerns.

Throughout the current crisis, the Fed has worked to keep interest rates low and squeeze as much demand as possible from the COVID-19 economy. This has helped keep retail, hospitality, and other sectors above water and boost confidence in the economy. However, investors overall seem to believe the economy will not immediately rebound and are leaning more conservative with their portfolio risk tolerance. The resulting tug of war between the Fed's focus on sustainable growth and still-low consumer demand is one element of the economy among many financial advisors must keep an eye on.

To keep interest rates low, the Fed has been purchasing large quantities of long-dated Treasuries, but this has had its own side effects. For one, the expectation of an economic rebound and a drop in unemployment accompanies speculation about inflation, as the Fed has long tied lower unemployment to higher levels of inflation. For another, while bond prices are high, yields are significantly lower right now than they have been in some time. And most critically, real yields—the return bond investors can expect once inflation is taken into account—are collapsing.

What do falling real yields mean for wealth management strategies in the short and long term? The biggest impact is on risk level and income needs. Some may choose to look for safe havens for their money amid a collapsing TIPS real yield and try to put it into a more tangible asset, like gold. For others who may want or need the real returns more volatile investments can provide, equities and other assets like junk or corporate bonds, tech stocks, and emerging markets can start to seem more attractive. Together, these phenomena have the potential to shift how investors view their participation in the market and shape their portfolio allocation, and financial advisors will have to adjust their approaches as well.


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At The American College of Financial Services, our expert faculty members are always keeping an eye on the economy-market dichotomy and are working to determine the best path forward. In this time of unprecedented financial uncertainty, you need the latest insight and information to make the best decisions for your clients' portfolios.

Our latest article, "Are Negative Real Yields Becoming a Real Problem?", dives into the data and delivers insights on the state of the COVID-19 market, as well as how financial advisors can plan with confidence in a changing world. Download now or learn more at

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