Surprise! Your Clients Lost More Money in Bonds Last Year Than They Did in Bitcoin

Bonds won’t recover into interest rates return to their pre-2022 levels

You had a choice last year to follow, or ignore, my advice. As 2022 began, I recommended that you get out of the bond market (moving that money to cash or equivalents) and place 1% of your client portfolios into bitcoin.

How’d my advice work out? Well, I was certainly right about the bond market: it fell 13% last year, its biggest loss ever. But bitcoin fell 77% from its November 2021 high! Ugh.

But before you congratulate yourself for dismissing my advice, consider this: if you ignored me last year and maintained your long-held 60/40 portfolio, your clients ended up losing more money than they otherwise would have.

Here’s why. If you had a typical 60/40 portfolio and ignored me, your clients lost 17% last year. But if you had followed my advice, your clients would have lost about 12% – five percentage points better. How could that be, if bitcoin lost 77% and bonds only lost 13%? Simple: losing 13% of 40% is a far bigger loss than losing 77% of 1%.

And the worst part is that my bond prediction wasn’t really a prediction at all; it was guaranteed. That’s because the Fed clearly stated that it planned to raise interest rates by historic levels last year – and we know that when interest rates go up, bond prices go down. It didn’t take a genius to realize that you needed to get out of bonds before that happened.

And the sad part is that many financial advisors incorrectly believed that all they needed to do is hold the bonds and wait for them to recover. Bad thinking. Sure, stocks can recover. And bitcoin can recover. But bonds can’t – unless interest rates return to their pre-2022 levels. And that’s certainly not going to happen in the foreseeable future. In other words, advisors have locked in their clients’ bond losses.

But that’s certainly not the case for advisors who recommended crypto. Even if you somehow managed to suffer the world’s worst case of market timing, buying at the all-time high and thus suffering a 77% loss in that 1% allocation, you don’t need to fret. Eventually, bitcoin’s price will recover and, ultimately, it will achieve new all-time highs.

It’s not just me saying this. A survey of advisors from Bitwise and VettaFi – taken before 2023’s rally began – found that 60% of financial advisors are bullish on crypto. The survey also found that 50% more advisors personally own crypto today than two years ago.

So, it’s still early in 2023. Time for you to rethink your portfolio allocation. A 59/40/1 or 57/40/3 allocation strikes me as quite reasonable – and better than a 60/40.

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