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Investing Specialists

A Midyear Bucket Portfolio Checkup

As interest rates roil the bond market in 2018's first half, we assess the damage.

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Investors typically hold bonds to provide stability and a modicum of income, to serve as ballast for higher-returning/higher-volatility stocks. But occasionally the opposite performance pattern prevails: Losses in a portfolio come from the bond side of the house, not from stocks. Such was the case in the first half of 2018.

Indeed, the Federal Reserve's interest-rate hikes--two in 2018's first half with two more likely on the way before the year is over--are the primary explanation for performance in my bucket retirement portfolios so far this year. Despite decent, albeit unspectacular, returns in the portfolios' equity holdings, those gainers were offset by more rate-sensitive bond positions. Those countervailing forces led to flat or modestly negative results across all six of the core Bucket portfolios. (There are three portfolios for mutual fund investors--Aggressive, Moderate, and Conservative--and AggressiveModerate, and Conservative portfolios for retired ETF investors.)

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Christine Benz does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.