The unprecedented combination of artificially low, central bank manipulated treasury bond yields with elevated inflation presents investors with a serious challenge. When investors earn a rate of interest that is substantially below the rate of price increases in the economy, they lose purchasing power. The loss of purchasing power is very different than periodic corrections in equity prices. An investor with a diversified equity portfolio incurring a 10% portfolio loss often experiences a recovery when conditions improve and market confidence comes back. The net effect on an equity portfolio is that the annualized return, through the correction and recovery periods, will be positive and often in line with long term returns.
Convertible Bond 2022 Review and 2023 Outlook
The S&P 500 Index, along with most other market indices, rose during the first day