This week I’m covering my outlook for the economy and markets in 2023.

Today, I’m talking about the outlook for the bond market in 2023. This is important for many of you who are listening who are close to retirement or already retired, since you likely have anywhere from 40-50% of your retirement investment portfolio in bonds, and if you don’t and you’re closing in on retirement, you should.

Alright, so what about bonds in 2023? I actually think bonds are going to be a bright spot for many investors this year, if you can take advantage of higher shorter term rates. 

Bonds were decimated in 2022, with their worst calendar year performance ever. The historic decline of xx% in the bond market caused a tremendous amount of pain for conservative investors, many of whom saw their investment portfolios decline by at least 8-10% in 2022. 

Since interest rates are heading higher in 2023 as the Fed continues to snuff out high inflation, it’s likely that bond investors could see further declines in 2023. So why do I think bonds will be a bright spot in 2023?

Well, much of the decline in bonds has already happened, and the Fed has already dialed back the magnitude of rate increases. That means that any further losses in bonds are possible, but most likely will be nowhere near the magnitude of losses seen in 2022. And with interest rates already very high, there are some pretty awesome bargains to be found in bonds at the moment. 

For example, many money market accounts which are highly liquid cash like investments that are quite safe and not susceptible to price declines are yielding over 4% at the moment. Short-term FDIC insured CDs that mature in 1-2 years are yielding over 4.5%. These are yields not seen in more than 15 years. 

It’s important then that bond investors stick with short and intermediate high quality bonds in this environment, and if you do, you’ll be rewarded with lower risk returns not seen in quite some time. 

That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the Retirement Quick Tips podcast.   

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Tags: retirement, investing, money, finance, financial planning, retirement planning, saving money, personal finance