Almost every retirement plan has a shock absorber built into it. Stocks are the engine. Bonds are the suspension. When the road gets rough, bonds are supposed to go up while stocks go down, so the ride stays bearable and you are not forced to sell shares at the bottom to pay the bills.
That arrangement has a condition nobody printed on the box. Writing in Monday’s Wall Street Journal, James Mackintosh spells it out: in the old investment paradigm, government bonds acted as shock absorbers, with prices rising and yields falling when the economy takes a hit. But in a world where the shocks cause inflation, bond prices fall and yields rise when bad stuff happens. He adds that this is particularly true when government debt levels are so high.
His example is the on-off U.S.-Israeli war on Iran, which he says offers a template. Every time it flares up, as it did in the week before Monday’s paper, stocks fall, bonds fall and even gold falls. That line is Mackintosh’s own description of a pattern around one conflict. It is not a claim about how markets behave every day, and nobody in the column said it out loud.
A sovereign fund started over
Raphael Arndt is chief executive of Australia’s Future Fund, the country’s sovereign-wealth fund. After Covid, the column reports, he and his team realized geopolitics is back, big government is back, politics has become more populist and the old approach to investment no longer works. “I said we have to tear everything down to first principles and rebuild it,” he said. The answer that came back was, in his words, “a pretty clear portfolio strategy that said, ironically enough, we need more equities, not less. Because we need higher returns to make up for the risks.”
On bonds he is blunt. “We need to work hard to diversify, and bonds won’t necessarily diversify,” Arndt says. He bought gold in the hope of it offering protection as bonds used to; Mackintosh reports that since the Iran war, it hasn’t worked. Arndt also uses hedge funds designed to make money in both up and down markets.
Bonds still cushion one kind of shock
Here is the half a headline would skip, and it matters more than the rest. Mackintosh does not say bonds are finished. At the moment, he writes, he likes government bonds as protection against a major fall in stocks if traders turn sour on artificial intelligence, because a big drop like that would be a much more traditional type of shock — slowing the economy, slowing inflation, and making the solid yield of Treasurys look attractive. His warning is the second half of that thought: “But in a world of wars, trade wars and crop failures, bond yields need to be higher than they were because they offer so much less protection than they used to.” So the honest version is not that bonds stopped working. It is that bonds cushion some shocks and not others, and the ones they do not cushion are the ones on the news.
Raman Srivastava, CEO of Insight, part of Bank of New York Mellon: “The biggest risk is inflation moving far out of control, like the 1970s-80s.” He likes infrastructure bonds with yields that rise with inflation, holds fewer long-dated bonds to avoid the volatility inflation brings, and suggests a more active approach.
Mike Bell, head of market strategy at RBC BlueBay Asset Management, on why the risks everyone can see are not in the price: “markets don’t really price geopolitical things until they actually happen, even if the risks are very clear.” And on what to expect from here: “If you just need to buy and hold something for the next decade I think you just have to accept that it’s going to be a bumpier ride than in the past.”
Read the Future Fund’s answer carefully, then notice what makes it theirs. Mackintosh points out the fund is unusual among large funds in having the freedom to ignore benchmarks. It also is not sending someone a monthly income check. “Buy more stocks so the returns pay you for the risk” is a sentence that works if you can wait for the average to show up, and a retiree drawing income gets paid in sequence, not in averages. If bonds cushion fewer of the shocks than they once did, the general planning principle worth thinking about is runway — holding enough in cash and short-term bonds to cover withdrawals through a bad stretch, so that a bad stretch never forces a sale. That is our framing, not the Journal’s, and what is right depends entirely on your own numbers. Bring your statement to a review and we will count how many months of income you could cover without selling a single share.
Read the Future Fund’s answer carefully, then note what makes it theirs and not ours. Mackintosh reports the fund is unusual among large funds in having the freedom to ignore benchmarks, and the column never suggests a retiree should do what it does. For a household drawing income, we would weigh a different response than “more equities” — enough cash and short bonds to fund withdrawals through a bad stretch, so a drawdown does not force a sale. That is Capital Wealth’s framing, not the WSJ’s, and individual circumstances differ; it is not a recommendation. Note too that the columnist himself says he currently likes government bonds as protection against an AI-driven selloff, so this is not a case for abandoning bonds. This is the sequence-of-returns page of the week: bring your statement and we will count how many months of income you can cover without selling anything.