Financial Clutter | Risk in High Yield Bonds

GIVING WITH INTENTION: I recently had the privilege of interviewing Cecilia Diem, a respected voice in the world of philanthropy. In her role, she frequently interfaces between non-profits and donors. I asked her questions around the topics of intentional giving and stewarding philanthropic vision within families.

You can read the overview of our conversation here. I would especially recommend looking at her Donor Intent Audit (page 2), designed to help families revisit their core values, the best avenues to accomplish those outcomes, and strong charitable partners working in those areas.

—By Evan Hewitt

Here’s a quick soundbite from our conversation:

And spread tells a story. It can be viewed as the maximum excess return an investor can expect over Treasuries for a period roughly equal to the index’s duration. For high yield, that duration is now just under 3 years, down from the 4–5 year range it carried for most of the past two decades. In other words, even in a best-case scenario, investors can expect no more than about 2.6% return per year above Treasuries over the next few years, and history shows that high yields often earn less as defaults chip away at those returns.

If you look back, the history is consistent. When spreads start this tight, forward returns are poor. Comparing starting spreads vs. forward 4.5-year excess returns makes the point clearly; tight spreads tend to precede weaker outcomes. In the early 2000s and during the financial crisis, spreads were narrow, and realized returns were 10%+ below those levels.

AI DEEP DIVE: A thorough analysis on the complexities surrounding valuations and AI—from a voice we respect: Sparkline Capital Surviving the AI Capex Boom.

FINANCIAL CLUTTER?: The Average American has 5.3 bank accounts. The average response to the previous sentence could be, “Why?” Reasons to close unused or excessive number of bank accounts:

• Risk of identity theft
• Unnecessary tax summaries
• Increased risk of NSF fees
• Uncompetitive rates
• Tax inefficiency of interest from money markets, CDs, and High Yield Savings accounts
• Creates a cluttered estate when you pass
• Increased risk of online fraud
• Wasting your time monitoring statements and password management
• Decision fatigue

ASSET BACKED LOANS: Asset-backed loans (often called securities-based lending or portfolio loans) allow you to borrow against your investment portfolio without selling your holdings. They can be a fit when investors are seeking tax efficiency and often used to fund real estate purchases or bridge financing. As your liquidity needs unfold, plan ahead and consider the role an asset backed loan can play. Invite us into the conversation.

NOW GO TALK ABOUT IT:

Betting scandals recently hit the NBA and MLB. The new term “prediction markets” is entering the lexicon. Polymarket and Kalshi are top names in “prediction markets” with possible IPOs in the future. TV viewers (young and old) are inundated with gambling-related commercials while they watch their favorite sports team. What’s the impact?

“Making this addictive product more widely available has had the predictable result of increasing the number of addicts. It’s a difficult problem to track, but at least 6 million to 8 million U.S. adults are estimated to have a mild to severe gambling problem, costing the economy $7 billion, and many experts believe those are undercounts.”

-Scott Galloway

Full article here.

*The views expressed represent the opinions of Compass Ion Advisors, LLC, as of the date noted and are subject to change. These views are not intended as a forecast, a guarantee of future results, an investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial, or legal advice or service to any person. The information contained has been compiled from sources deemed reliable, yet accuracy is not guaranteed.

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