Andrew Shilling at MarketWatch asked five advisers how to take advantage of Treasury yields near their highest levels since 2007, with the long end pushing toward 5%. My answer started with the fact that the same yield means different things to different people.
A 20-year Treasury at these yields looks different to a 40-year-old accumulating than it does to a 68-year-old who needs income next year. For the accumulator, locking in a long bond is a bet on where rates go. For the retiree, it can be a decade of dependable income bought at a good price. Age and cash needs decide the answer before the yield does.
Depending on the client's phase of life and risk tolerance, I currently allocate 25% to 40% of diversified portfolios to fixed income, a significant increase from two years ago, but I split the difference on duration rather than going all in on the long end.
My playbook is a barbell. Short-term T-bills covering 12 to 18 months of client expenses, so no withdrawal is ever forced at a bad moment, with a second layer in intermediate investment-grade corporates in the 4- to 7-year range, which were yielding in the 5.5% to 6% neighborhood. That structure captures most of the available yield while keeping the portfolio flexible if rates keep rising.
Build a ladder, not a bet. Yields this good are worth owning. They are not worth over-owning at one maturity.
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