About this Video
- Video Title: 3 Funds for a Recession
- Channel: Morningstar, Inc.
- Speakers: (Speaker name not provided in transcript)
- Duration: 00:02:07
Introduction
This Morningstar video discusses three bond funds suitable for a potential recession. The speaker explains that while significant portfolio changes based on economic forecasts aren't recommended, understanding how different investments perform in recessions is beneficial. The video focuses on funds likely to perform well during a recessionary period characterized by declining interest rates.
Key Takeaways
- High-quality, longer-term bond funds generally perform well in recessions due to declining interest rates. These funds gain when rates fall but lose when rates rise.
- Fidelity Tax-Free Bond (FTABX): A gold-rated fund with a disciplined, bottom-up strategy, minimizing market-timing risk. It's considered recession-resistant due to municipal bonds' low default rate.
- Vanguard Inflation-Protected Securities (VAIPX): A silver-rated fund with a long-duration portfolio and interest rate exposure, also offering inflation protection. However, it's less tax-efficient, best suited for tax-sheltered accounts.
- Vanguard Long-Term Bond Index (VBLAX): Another silver-rated fund with exposure to long-term, high-quality bonds, minimizing credit risk but carrying significant interest rate risk (as evidenced by a 27% loss in 2022). Should be used with caution.
- Economic predictions are unreliable: The speaker cautions against over-reliance on economic forecasts, comparing their accuracy to weather or sports predictions.
