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. The ride stays bearable, and you are never forced to sell shares at the bottom to pay the bills.
The Broken Spring
Writing in Monday’s Wall Street Journal, James Mackintosh spells out the condition nobody printed on the box.
In the old paradigm, a shock slows the economy. Bond prices rise, yields fall, and the cushion works.
But when the shock causes inflation, bond prices fall and yields rise when bad stuff happens. He adds that this is especially true with government debt levels this high.
His template is the on-off U.S.-Israeli war with Iran. Every time it flares up, stocks fall, bonds fall and even gold falls. That is his description of one conflict’s pattern, not a law of nature.
Last week’s numbers show the muddle. The S&P 500 rose 1.23%, the Dow fell 0.50%, gold slipped 0.21% to $4,104.10, and the Bloomberg U.S. Treasury index yield rose to 4.460% from 4.380%.
Australia Started Over
Raphael Arndt runs Australia’s Future Fund — the country’s sovereign-wealth fund, a national savings pot.
After Covid, he and his team decided the old approach no longer worked. Geopolitics was back, big government was back, politics had turned populist.
“I said we have to tear everything down to first principles and rebuild it,” he said.
The rebuilt answer surprised even him: “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.”
He bought gold hoping it would protect the way bonds used to. Since the Iran war, Mackintosh reports, it has not worked. He also uses hedge funds designed to make money in both up and down markets.
What Still Works
Here is the half a headline would skip, and it matters more than the rest. Mackintosh is not writing an obituary for bonds.
Right now he likes government bonds as protection against a major stock fall if traders sour on artificial intelligence. That would be a traditional shock — slowing the economy, cooling inflation, making Treasury yields look attractive.
His warning is the second half: in a world of wars, trade wars and crop failures, bonds offer less protection than they used to, so their yields need to be higher.
Two more voices from the column agree on the flavor of risk. Raman Srivastava of Insight fears inflation “moving far out of control, like the 1970s-80s” and holds fewer long-dated bonds. Mike Bell of RBC BlueBay expects “a bumpier ride than in the past” for buy-and-hold investors.
Now read the Future Fund’s answer once more and notice what makes it theirs. It is unusual among big funds in being free to ignore benchmarks. And it does not mail anyone a monthly check.
A retiree does. You get paid in sequence, not in averages, and “buy more stocks” only works if you can wait for the average to show up.
So the principle worth keeping is runway: enough cash and short-term bonds to cover withdrawals through a bad stretch, so a bad stretch never forces a sale. That framing is ours, not the Journal’s.
Bring your statement to a review and we will count the months. How much income could you draw without selling a single share? That number is your suspension now.