That's why most model portfolios which include long term treasuries also include some asset class which does well in stagflation, like TIPs or gold.Goldwater85 wrote: ↑Mon Jan 11, 2021 11:22 pmLong term treasuries are a great place to be during deflationary, low growth environments. A basket of broad market equities is a great place to be during inflationary high growth environments. It’s therefore been a great combo for almost 4 decades.vineviz wrote: ↑Sat Jan 09, 2021 5:48 pm
Your trapped in a loop of circular logic, albeit a common one.
If you to hold an asset that is most like to buffer against a stock market decline, then you want bonds which have as low a correlation with stocks as you can find and as much variance S possible. That’s long-term Treasury bonds. Definitely NOT cash.
But that might seem scary because someone convinced you that “bonds are safety” or that “you should take risk on the stock side” or something.
So you fly to cash, which does nothing but make you feel better about being less wealthy. Don’t do that.
Your investment horizon is determined by when you will spend your money, not from which fund the money is spent. If you’re a long-term investor, long-term bonds reduce your interest rate risk relative to shorter bonds or cash.
Neither of those assets is likely to do well in an inflationary, low growth environment (stagflation). No crystal ball but the concern is legitimate, and with real rates on below zero, it doesn’t take a lot of stagflation to wreak havoc on this combo.
If you are fully invested in only stocks and long term treasuries, inflationary recession is simply going to kill your portfolio.