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When Volatility Taxes Your Patience And Your Portfolio

When Volatility Taxes Your Patience And Your Portfolio by Peter Hayes, BlackRock

We continue our tax-time chart series with a look at how municipal bonds help manage against equity market volatility.

Last week we discussed how municipal bonds can be an attractive source of after-tax income, no matter what your tax bracket. In the second of our five-chart series, we’ll look at how they offer a ballast against equity market gyrations.

Volatility has clearly been the word of the year for stock market investors in particular. After sitting relatively quietly in the teens throughout most of 2012 through early 2015, the VIX Volatility Index has frequently breached the 20s in 2016. It’s an uncomfortable reality for most investors, and it begs the question:

Is your portfolio built to withstand the inevitable equity market ups and downs?

A “yes” answer would mean your investment mix contains an allocation to bonds for equity ballast, a prudent idea and one well-articulated by my colleague Matt Tucker. One type of bond has a track record of particularly low volatility — municipal bonds. As shown below, they have provided a compelling offset when equities decline.

When Volatility Taxes Your Patience And Your Portfolio

When volatility taxes your patience and your portfolio

Peter Hayes, Managing Director, is head of BlackRock’s Municipal Bonds Group and a regular contributor to The Blog.