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Welcome to the latest edition of the Healy Wealth Management newsletter, your monthly guide to navigating the financial complexities of life.
Let us know your thoughts. And if there’s something that could benefit a friend or family member, please send it their way.
Job loss. Divorce. A business setback. The loss of a spouse. When your financial situation changes overnight, it’s tempting to make big decisions fast. In this month’s episode of Real Questions, Honest Conversations, Kathy Healy shares the 5 steps we walk clients through when life takes an unexpected turn.
Click below for guidance that can make the difference between simply surviving a setback and coming through it stronger.
I have keys but no locks
I have space but no room
You can enter, but can’t go outside
What am I?
The S&P 500 set a fresh all-time high on August 13, up more than 20% from a year ago. The 10-year Treasury yield remains elevated at around 4.75%, its highest level in 19 months. The 30-year Treasury topped 5.3% this month, the first time since 2007.
If you’re still years away from touching your portfolio, this is background noise. If you’re close to retirement, or you just crossed into it, it lands differently. You’re not asking an abstract question about markets. The war, inflation, budget deficits, the new Fed Chairman’s style, have caused bond prices to fall and yields to rise. As Wall Street veterans recognize the relatively superior market wisdom of institutional bond investors, you may be wondering whether your investment values will remain sufficient to sustain your retirement.
That’s the right question. Here’s how we think about it:
Quality bonds don’t always reduce risk.
Traditionally, investors have counted on bonds to cushion a stock decline. In 2022, the Fed’s rate-hiking cycle sent the 10-year yield from under 1.5% to over 4% in about a year, the S&P 500 fell roughly 19%, and bonds had one of their worst years on record at the same time. It was the clearest recent example of what happens when a selloff is driven by rising rates rather than a recession or a credit scare: the usual stock/bond correlation flips, and both move against you together.
The 60/40 stock/bond portfolio, and the general assumption that bonds will offset equity declines, was never a law of markets. It was a reasonably reliable pattern for a long time, and 2022 is a reminder that it isn’t guaranteed.
The 40-year tailwind behind that assumption may be over.
Context helps here. The 10-year yield peaked near 15.8% in 1981 and then fell almost continuously for 40 years, bottoming around 0.5% in August 2020. That multi-decade decline is the backdrop nearly every retirement rule of thumb was built on, including the assumption that bonds provide ballast. Since 2022, that trend has reversed, and yields have kept climbing since, with this month’s move to 19-month highs the latest leg of it. We may be in the early stage of a structurally different, higher-rate regime rather than a temporary detour back to the traditional paradigm.
Why rates keep climbing, and why the pressure may not let up on its own.
The Congressional Budget Office recently raised its FY2026 deficit estimate to $2.1 trillion. Net interest payments on the national debt are now running at $970 billion. As a percent of GDP, this exceeds the prior post-war high set in 1991 when the 10-year bond rallied as yields fell from 8.0% to under 7%. Back then, rates were coming down from the elevated levels of the Volcker era while deficits were fueled by Reagan’s tax cuts and defense build-up. Today, the CBO projects net interest costs will roughly double to $2.0 trillion by FY2036, on pace to become the single largest line in the federal budget by 2048.
Today’s mechanics, unlike 1991, are self-reinforcing: bigger deficits require more borrowing, more borrowing at today’s higher rates means bigger interest payments, and bigger interest payments add straight back into next year’s deficit. Layer on record AI-related corporate bond issuance, roughly $1.7 trillion so far this year, competing with Treasuries for buyers, plus oil prices staying elevated on the back of the conflict in the Middle East keeping inflation pressure alive, and you have several structural forces leaning the same direction at once rather than a single headline to wait out.
Why we build every plan around a worse scenario than this one.
Every financial plan we build for a client is stress-tested against a 50% drop in the stock market, a deliberately conservative bear case, well beyond 2022. If your plan holds up against that, then a bond market that’s grumbling about deficits and inflation shouldn’t change anything about your life. We’re not just hoping the plan works. We’ve already tested it against something considerably worse than what’s happening right now.
We also employ a hedged equity overlay strategy designed to protect against a crash. It’s a protective put structure designed to cap downside at roughly 10% to 20%, point-to-point over 12 months, regardless of what bonds are doing. Unlike moving to cash or having a fully de-risked bond ladder, hedged equity still participates in further market gains, so staying invested through a stretch like this one doesn’t mean giving up growth entirely.
We show our clients how their plan actually performs under that 50% bear case. If your advisor isn’t doing this, or you’re wondering about fully incorporating a hedged equity overlay into your plan, that conversation is worth having now, not after the next crash. Give us a call.
“I don’t get no respect – when I was born, I was so ugly…
the doctor slapped my mother!”
– Rodney Dangerfield
Anger is a natural and often entirely justified response to unfairness. Yet it can easily hijack your logic and blind you to the most profitable, strategic way to resolve the situation. The key isn’t necessarily to remain calm, it’s to channel your anger in a rational and productive manner.
An employee at Charlie Munger’s firm once stole roughly $12,000. Because his firm maintained a fidelity bond to cover employee theft, Munger filed a routine claim.
To his astonishment, the large and prestigious insurer flatly denied the claim using bureaucratic excuses. Munger was completely justified in feeling furious at this blatant corporate bad faith. A typical, emotionally driven reaction would be to launch an expensive lawsuit out of pure spite to “prove a point.” However, Munger recognized that letting anger dictate his tactical execution would be a massive mistake. A standard lawsuit would cost far more than $12,000 in billable hours, administrative headaches, and wasted cognitive energy.
Instead of letting anger cause a poor decision, Munger used his outrage as fuel to engineer a brilliant, clear-headed strategy. He penned a calculated letter directly to the insurance company’s chairman.
This private letter has never been made public. But Warren Buffett described it at the 2022 Berkshire Hathaway Annual meeting:
“So this guy is clearly dishonest, he’s clearly stolen the money, so Charlie puts in a claim for twelve thousand dollars … and sends it to this very big and prestigious insurance company.
And of course the insurance company denies his claim. They say … the guy really wasn’t an employee, doesn’t exist… I mean the whole thing.
And Charlie gets this letter back and they’re not going to pay the claim. So Charlie writes a letter to this very well-known big name person that runs the insurance company and he said, ‘look, we have this twelve thousand dollar claim and … this guy stole the money, and we thought we had a insurance policy against people stealing that paid us if people stole money.’
And Charlie said, ‘we’re in this very interesting position because you’ve got a bunch of people on your payroll and they’re going to get their weekly paycheck … so they’ll just say you’re not going to pay and life goes on.
Whereas I’m sitting here and I’ve got my time, I gotta work on this thing, and it isn’t worth the twelve thousand dollars for me to fool around with this claim against your company.’ And you’ll appeal it and all these things.
So Charlie said, ‘I know that you would be offended by the thought that you might be using this inequality as a bargaining position to avoid paying the claim, and that never could be your intention. So what I suggest in order to really live up to your code of behavior is why don’t we make the twelve thousand dollar claim… we’ll just multiply it by 10 and call it $120,000 either way.
And if you lose you pay me $120,000, if I lose I’ll pay you $120,000. Now it’s worth my while.’
By channeling his anger into this simple escalation rather than immediately launch an expensive lawsuit, Munger created a dilemma where the chairman had only three choices:
Bullies, whether they are aggressive individuals or faceless corporate bureaucracies, operate on a specific risk-reward calculus. They target victims they perceive as weak, isolated, or easily overwhelmed.
When you confront a bully with cold, structured logic or an aggressive escalation like Munger’s proposal, you instantly shatter that asymmetry. You signal that you are not afraid, you cannot be intimidated, and you are playing an entirely different game. This sudden loss of predictability induces panic, and because bullies are rarely prepared for a fair fight, their default reaction is to retreat.
The insurance company chose option number three. As Buffett said, “… and Charlie gets a $12,000 check by return mail.”
“Hegel predicted that the basic unit of modern society would be the state, Marx that it would be the commune, Lenin and Hitler that it would be the political party.
Before that, a succession of saints and sages claimed the same for the parish church, the feudal manor, and the monarchy.
…they have all been proved wrong.
The most important organization in the world is the company: the basis of the prosperity of the West and the best hope for the future of the rest of the world.”
John Micklethwait and Adrian Wooldridge,
The Company – A Short History of a Revolutionary Idea
Answer:
A keyboard.