Perspective :

Bonds stink. Give me CDs!

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Maybe, but maybe not.

Not long ago, cash and cash-like investments were more about the “return of capital” instead of “return on capital,” given historically low-interest rates. However, the landscape has changed materially with the Federal Reserve’s aggressive moves over the last 12 months. This change is prompting many advisors to question even taking risk within the fixed income allocation of client portfolios when they can lock in seemingly attractive returns not seen in many years.

Many advisors are turning to CDs or buying bonds directly, including Treasury Bills and 2-year Treasury Notes. Part of this attraction reflects the shellacking fixed income investors suffered in 2022. This recency bias has led many to assume that what transpired in 2022 will be the case in the future. With the Bloomberg U.S. Aggregate Bond Index down a historically challenging 13% in 2022, many advisors are tempted to raise the white flag and opt-out for a repeat of 2022. See the red dot below (2022) to appreciate the magnitude vs. prior calendar years.


If you’re an advisor tempted to forego active fixed-income investments for the near certainty of CDs and T-Bills, consider these points:

1. Time horizon

If the client needs their money in the next 0 to 36 months, the certain return and principal protection of CDs and T-Bills are attractive. This has always been the case – not just now with higher interest rates. However, for longer-term horizons, an actively managed approach that includes a broader opportunity set of fixed income-oriented investments may be worth consideration. For example, you may want to consider Frontier’s Capital Preservation, Absolute Return, Conservative or Conservative Multi-Asset Income These strategies are not a straight-up cash substitute, but the broader diversification offers the opportunity for more attractive longer-term returns than cash-like investments might.

2. Possible ceiling on returns

It’s important to acknowledge that investing in CDs and other cash-like investments places a ceiling on the potential return. The cost of that certainty caps the possible returns. Additionally, the current CD rates will not keep up with the relatively high inflation rate facing investors today.

3. Other yields

Within the fixed income market, the Yield to Maturity (YTM) of the Morningstar Multisector Bond Index is 7.2%, and the yield on the ICE BofA High Yield Bond index is 8.6%. Both of these raise the expected return of conservative-oriented portfolios.

4. Certainty vs. active management

By locking in a known return today, investors may miss out on the potentially attractive returns an actively-managed process may be able to exploit. My colleague, Geremy van Arkel, recently wrote about issues facing fixed income investors today (Bond positioning for today’s market). Additionally, investors only earn the long-term average returns by participating across an entire market cycle. Actively deciding to opt out of these opportunities may reduce long-term returns. See the bullet points in the exhibit above about prior years with negative fixed income returns when subsequent returns were quite attractive. There are no guarantees, of course, but that has been the case in the past.

5. What’s your move after CDs mature?

You will want to consider what your investment move will be when (or if!) the Federal Reserve starts to lower interest rates in the future. Where will you invest the proceeds from the maturing CDs/bonds? You will likely be unable to get similar yields. The total return over the entire period will reflect this.

6. The tax man cometh

Don’t forget to consider the after-tax return of interest income from CDs and bonds. This income will generally be taxed at the client’s highest tax rate. Income strategies that incorporate qualified dividends, long-term capital gains, and/or municipal bonds may be worth considering for some taxable investors.

Clearly, the Federal Reserve is not done considering future rate increases. But the new, higher-yielding fixed environment makes fixed income investing materially different than when investors were facing near 0% interest rates. Active managers can look for attractive returns with different maturities, issuers, credit quality, and more. And at Frontier, we believe our actively managed, diversified approach across our strategies is a compelling response to today’s yield environment.

Want to learn more? Contact us.

Frontier does not provide tax advice. Please consult with a CPA for recommendations pertaining to individual circumstances.

It is generally not possible to invest directly in an index. Exposure to an asset class or trading strategy or other category represented by an index is only available through third party investable instruments (if any) based on that index.

Any forward-looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. Exclusive reliance on the information herein is not advised. This information is not intended as a recommendation to invest in any particular asset class or strategy or as a promise of future performance. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Assumptions, opinions and estimates are provided for illustrative purposes only. They should not be relied upon as recommendations to buy or sell any securities, commodities, treasuries or financial instruments of any kind.

Frontier Asset Management LLC is a Registered Investment Adviser with the Securities and Exchange Commission. The firm’s ADV Brochure and Form CRS are available at no charge by request at or 307.673.5675 and are available on our website They include important disclosures and should be read carefully.

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