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Why Do You Need Bonds?

Why Do You Need Bonds?

Why should you consider bonds for your investment portfolio? The primary reasons include:

  • Bonds add diversification to your portfolio. One strategy to help counter the effects of stock market volatility is to add investments to your portfolio that aren’t highly correlated with the stock market. Historically, stocks have a low positive correlation with corporate and government bonds.
  • Bonds offer fixed, periodic interest payments and the return of your principal at maturity. Thus, even in the event of a significant market decline, you receive some return in the form of interest payments, and you will receive your principal at maturity.
  • Bonds are often better suited to short-and medium-term financial goals. If you need your money in a few years, you may not want to keep those funds in stocks, since a major stock market decline could occur when you need your money.

Most investors will hold stocks, bonds, and cash in their investment portfolios. How much you should allocate to the bond portion will depend on your circumstances; but over time, that percentage is likely to change. For instance, young investors are likely to be more concerned with growth, so bonds may only make up a small percentage of their portfolio. On the other hand, those who are retired or close to retirement are likely to own a higher percentage of bonds as safety of principal and a steady income stream become more important. In general, the percentage of bonds you own should increase as you become more averse to putting your capital at risk. Please call if you’d like to discuss the role bonds should have in your investment portfolio.

 

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Copyright © Integrated Concepts 2015. Some articles in this newsletter were prepared by Integrated Concepts, a separate, nonaffiliated business entity. This newsletter intends to offer factual and up-to-date information on the subjects discussed, but should not be regarded as a complete analysis of these subjects. The appropriate professional advisers should be consulted before implementing any options presented. No party assumes liability for any loss or damage resulting from errors or omissions or reliance on or use of this material. 

 

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