Is the S&P 500 Enough? The 'Essence of Wealth Building' to Consider When You're Uncertain Due to Rising Interest Rates
Are bonds and gold necessary for me right now?
“I hear interest rates are rising.”
“Isn’t it dangerous to only hold stocks?”
“Should I buy bonds or gold to prepare for a market crash?”
If you keep investing, you will be struck by this anxiety at least once.
Open social media, and you’ll hear voices shouting, “Bonds over stocks right now” or “Gold for times of crisis.” Those who have been steadily accumulating the S&P 500 are the ones who waver the most.
Is my approach wrong?
Before you decide, I want you to ask yourself one thing.
What is the purpose of buying that asset?
Bonds and gold both have their roles. That is not the problem. Are you buying them because you ‘need them’ or because you are ‘anxious’??
If interest rates rise, do stocks fall?
It’s a common story. It’s not wrong. If interest rates rise, corporate financing costs increase, and the present value of future profits decreases. It becomes a headwind for stock prices.
However, concluding that “rising interest rates equals falling stock prices” is too simplistic.
It is not just interest rates that move stock prices. Corporate profits, the economy, exchange rates, policy, and investor expectations all play a part. If the economy is strong, earnings can sometimes outperform even when interest rates rise.
You cannot decide to buy or sell by looking only at interest rates.
If you repeat “reduce because it went up” or “increase because it went down” every time there is news, long-term investing will not work.
Assets to protect and assets to grow
Stocks are ownership of a company. Companies generate profits, reinvest them, and return value to shareholders. There is a mechanism inside that creates value.
Gold is different. It is an asset for preserving value; it does not generate profit on its own. Bonds involve lending money to countries or companies to receive interest.
Stocks are for growth. Bonds are for stable income. Gold is for preserving value.
Since their roles are fundamentally different, there is no point in comparing “which is better.” This is what you should ask:
Which role do I need right now?
The 5% of a multi-millionaire is different from my 5%
When a multi-millionaire with 500 million yen in assets puts 5% (25 million yen) into gold and 20% (100 million yen) into bonds, the significance is massive.
They can live off the bond yields alone. They are past the growth phase and are in the preservation phase. Diversification becomes the very foundation of their lifestyle.
So, what about someone like me in the wealth-building phase?
My assets are a few million yen. I’m hovering around the 10 million yen mark.
Suppose that out of 10 million yen, I put 5% (500,000 yen) into gold and 10% (1 million yen) into bonds. Then, the stock market crashes, and my assets are cut in half.
“But I have 500,000 yen in gold. Its value hasn’t dropped.”
“The 1 million yen in bonds hasn’t taken a hit. This is huge.”
Can I really maintain my mental state thinking like that?
Admittedly, it’s slightly milder than holding only stocks. But you don’t make that kind of comparison in the middle of a crash.It’s a drop in the bucket.
Half-hearted diversification of a few percent is unlikely to function as a cushion at our scale.
Moreover, if you put 1 million yen into bonds, the interest you get is only a few percent a year. Are you going to spend time worrying about fine-tuning your portfolio for those few tens of thousands of yen?
Spend all that time on a side hustle—food delivery, YouTube, whatever—and earn a few tens of thousands of yen a month.That is a much faster and much larger return.
The biggest asset outside your brokerage account
This is the point I want to emphasize the most.
When people talk about wealth creation, they only look inside their brokerage accounts. What percentage is in the S&P 500, what percentage in global stocks, what percentage in bonds.
But for those working in their 30s and 40s, there is a massive asset outside of those accounts.
Human capital, in other words, the power to work and earn in the future.
If you work for 20 years with an annual income of 5 million yen, that’s 100 million yen by simple calculation. Because of raises, unemployment, and taxes, you can’t call it an asset as is. Still, thinking that ‘the financial assets I hold are everything’ is too narrow-minded.
Increase your contributions rather than polishing your portfolio by 1%
Suppose you have a portfolio of 10 million yen in financial assets. You keep worrying, ‘Should I put 5% in bonds?’ or ‘Should gold be 10%?’ That’s not a bad thing.
But what if you used that time to get a certification? To research the job market? To start a side hustle? To cut fixed costs?
If you increase your monthly contributions by 30,000 yen, that’s 360,000 yen a year. If it’s 50,000 yen, that’s 600,000 yen a year. If that continues for several years, the principal itself changes.
Improving your yield slightly isn’t the only right answer.
Especially during the wealth-building phase, increasing the actual amount of money you can invest is far more effective.
Before diversifying, build a system you can stick with
Stocks, bonds, gold, real estate, crypto assets. The more products you add, the more you have to manage. If you enjoy that, that’s fine.
But don’t you find yourself thinking about this every day? What happened to interest rates? Isn’t gold too expensive? Should I buy more if stocks drop?
The goal of investing is not to think about investing all day long.
Focus on your main job. Spend time with your family. Enjoy your hobbies. Don’t ruin your health. And, calmly continue your contributions according to the rules you’ve set.
In long-term investing, this boredom is your weapon.
Cash is fine as a cushion for market crashes
You buy bonds or gold because you’re afraid of a crash. That is one way of thinking.
However, the primary defense against market crashes during the wealth-building phase is cash as an emergency fund.
When stocks crash, being forced to sell them to cover living expenses is the worst-case scenario. Conversely, if you have enough cash secured for immediate living expenses, you can continue your contributions even if stock prices are cut in half.
Cash is far more reliably effective than hundreds of thousands of yen in bonds or gold. Cash that protects your livelihood is excellent risk management.
The scariest thing isn’t a bad decision
‘Is this portfolio really the right one?’ Anxiety will come again and again.
But what you really want to avoid in long-term investing isn’t a single bad decision. It’s changing your strategy every time you feel anxious.
When prices go up, you want to buy. When they go down, you get scared. When gold goes up, you want it. When bond yields rise, you want to switch. If you move with every news headline, the plan you originally made will disappear without a trace.
That’s why you decide before you start. Why are you investing?
Rather than what to buy, why you are buying
There is nothing wrong with holding bonds or gold. Concentrating only on stocks is not necessarily the right answer for everyone.
What you should look at is your total assets, age, income, emergency fund, investment horizon, risk tolerance, and your goals. The answer varies from person to person.
For someone who already has sufficient assets, the meaning of ‘diversification’ is different from someone who is aiming for their first 10 million yen.
That is why you shouldn’t buy something just because ‘everyone else is buying it’.
Do I have a reason to hold this asset?
Just thinking about this once will change how you approach investing.
In conclusion
There are three reasons why I don’t buy gold or bonds.
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Diversification of a few percent doesn’t act as a cushion at our scale
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The time spent worrying about it yields a higher return if invested in a side job or your main career
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Cash already acts as a cushion for market crashes
That is why my portfolio will continue to be only stocks and cash.
However, this is also a matter of preference and strategy. Gold and bonds are not bad assets.
Honestly, I would like to hear your opinions on this. For those who hold gold or bonds, what is your balance and why did you decide on it?, please let me know in the comments.
Interest rates rose. Stocks fell. Gold hit a new record high. Every time that happens, you want to change your current approach.
But what is important is not reading every single piece of news. For what purpose, how much risk, and for how long will you take it? It is about having that core principle.
Instead of adding one more investment, increase your monthly contribution by 10,000 yen. Instead of worrying about your portfolio by 1%, acquire skills that allow you to work longer. Instead of spending hours following the news, stabilize your life.
Wealth building does not end within your brokerage account.
Don’t look for flashy answers. Identify only what is necessary. Don’t add unnecessary things. Accumulate steadily.
Surprisingly, that is all you need.