Inflation and Bonds are Not Compatible

Bye Bye Bond ETF VCLT

As inflation continues to ramp up, it is becoming even more clear to me that investing in bonds is not in our best interest. Pun is intended. Bonds have fared poorly in this market correction and we have always been light in bonds anyway. Cindie and I are enjoying some time in Louisiana with some dear friends, and I am not doing much investing work during our time of relaxation. However, yesterday was a good day to sell our remaining bond ETF and replace that investment with other stock investments.

Allocations in our 8 Fidelity Accounts. VYM is our largest holding, followed by PFE and STX.

What I Sold

Both Cindie and I had shares of ETF VCLT. VCLT is the Vanguard Long-Term Corporate Bond Index ETF. In the last year this “safe” bond fund has lost over 19% of its value. So, even though the expense ratio is a sensible 0.04% and the yield is a respectable 3.91%, the loss of purchasing power is ridiculous in an inflationary environment. Furthermore, I can make far more trading options on other stock positions using the cash generated from the sale of this ETF. Therefore, in essence, Cindie and I now have zero percent invested in bonds.

What I Bought

Because I am a dividend growth investor with a desire to gain additional income selling covered call options, I look for stocks that I believe will be good long-term investments that pay a dividend and that are traded in the options market. Therefore, I added shares of HPQ, ZIM, and SGH. HPQ is a technology investment, ZIM is “ZIM Integrated Shipping Services Ltd.” (a marine industrial company) and SGH “SMART Global Holdings, Inc.” is a technology semiconductor business. SGH has very strong buy ratings on Seeking Alpha. HPQ has a “Strong Buy” Seeking Alpha QUANT rating, and ZIM has an irrationally low P/E ratio.

However, do not buy these investments if they don’t fit with your current investment portfolio and allocations. I share these buys as information, not as a recommendation for all of my readers. Now, back to vacation with Cindie in Louisiana!

Full Disclosure

Cindie and I own 1,600 shares of HPQ and smaller amounts of ZIM and SGH.