Rate Cuts & Bonds: Quick Take
Alex: Hello everyone, and thanks for joining our bi weekly commentary. I’m here with my colleagues Tom Boh and Kelly Heppe.
Today we’d like to talk about bonds. This isn’t always the flashiest part of portfolio discussions, but with recent interest rate cuts and a new Fed chair nomination, it’s a good moment to revisit how we think about bonds and fixed income overall.
In a diversified portfolio, we view bonds as the ballast—the steadying force that helps cushion stock market volatility. Our core philosophy is that most of the risk exposure should come from equities, while fixed income provides stability and consistency to smooth the overall experience.
That’s why we tend to favor federal money markets, Treasuries, high quality corporate bonds, and competitive CDs as the core building blocks of this allocation.
With that, Kelly, how are you seeing this play out today?
Kelly: Thanks, Alex. While we don’t take unnecessary risks within fixed income, it’s important to understand the risks inherent to these assets.
Because bond prices move inversely to interest rates, falling rates generally boost the value of existing bonds. That benefits current holders, but new investors may need to assume more risk to achieve similar yields.
There are also less obvious risks worth noting. Inflation can quietly erode real returns, and reinvestment risk can reduce the income investors ultimately receive. The bottom line: higher yields often come with higher risks, and understanding which risks matter most in today’s environment helps keep your strategy on track. With that, I’ll turn it over to Tom.
Tom: Thanks, Kelly. A quick tax update: Tax forms arrive in waves. They’ll appear first in your Baird Online portal and then by mail.
IRA forms such as the 5498 and 1099 R are already available. Taxable account forms should be released by February 15 for Wave 1. If you’re in Wave 2, expect those by March 1. As we do every year, we’ll reconfirm your CPA information and whether you’d like us to send documents electronically.
As always, thank you for your trust and confidence. Until next time, take care.
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2025 Tax Season
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