Since buying into muni ETFs (in late 2025) and muni mutual funds (early to mid 2026), they have been relatively stable despite all the volatility this in 2026. This gave me confidence that this was a good investment option for my retirement paycheck strategy, even though the strategy targeted for consistent payments and not consistent principal. However, this strategy still needs to experience a market downturn prove its value.
In recent back testing, I discovered that while the principal was relatively constant in the 2008 downturn, the principal fell significantly in the 2022 bear market. Why the difference? My conclusion is interest rates decreased in the 2008 recession, while interest rates and inflation increased in the 2002 bear market.
Bond prices go in the opposite direction of interest rates and hence the difference between the two years.
At this point, it appears interest rates are more likely to go higher than lower, resulting in more downward pressure and volatility on bond and bond fund prices. If this happens, this will be a real time test of the retirement paycheck strategy, which tries to maintain consistent payments even if the principal declines.
At the same time, I can put more money into bonds and bond fund with higher interest rates. However, I will be scaling in for the possibility the interest rates will increase over a year or more.
This is not financial, investment, nor bond advice. Please consult a professional advisor.
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