Hello and welcome back to The Money Vault, our new weekly Wednesday show where we dig into the archives to give you one of our classic episodes from back in the day. Damien, welcome back. How are you doing?

I'm good, Andy, and this week's show is about equity and bonds, but it's particularly relevant now. So although the past show looked at equity and bond correlations, I'm going to be talking about how that's really relevant to the stock market

at the moment because the stock market is flying high, but the bond market is flashing a warning.

So you really need to understand the correlations between bond markets and equity markets,

which is what this show focuses on, to then be able to explain why people are starting to grow

nervous about whether we are about to see a stock market collapse. So this show was from November

2021. So we will see you on the other side of this clip.

So Damien, bonds and equities. we need an easy way to understand the correlation.

Yeah, I suppose the very simple thing you should think about is that when shares go up,

so stock markets go up, bonds tend to go down, okay?

Now, that is the simple takeaway that you could go off with, and that's why you want to diversify a portfolio

and people do quite frequently have what they call a long equity bond portfolios where basically

they have some equities in their portfolio which will hopefully go up when the economy's booming

and the company's profit margins are great and earnings and therefore share prices go up.

But equally in that environment, bonds won't necessarily do as well because the fixed income,

the fixed return you get on a bond is less attractive in that environment.

And so they tend to maybe fall in value.

And so therefore they offset each other.

And on the flip side, in an environment where the economy is struggling, then companies

earnings could be hit, then shares will tend to underperform bonds where bonds might do well

because suddenly that reliability of a fixed income is a positive.

So that's the idea.

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