Why I Own Bonds
SOME INVESTORS TODAY are avoiding bonds because rising interest rates could cause the price of bonds to fall. I���m not one of them. Bond funds continue to play a significant role in my investment portfolio.��Here are eight reasons I���m sticking with my funds:
This isn���t a good time to sell. Bonds have already factored in the market���s expectation that rates will rise. Interest rates have climbed this year, causing a decline in bond prices. It may be too late to gain any benefit from changing my asset allocation.
There���s no better fixed-income alternative. Bonds have better yields than money market funds. Certificates of deposits have liquidity issues���there���s a penalty for early withdrawals. That penalty can mean forfeiting all the interest you���ve earned.
Today���s higher bond yields mean greater interest income.
Even if interest rates continue to rise, reinvesting my interest payments allows me to take advantage���and should boost my returns over the long term.
Having bonds in my investment portfolio is a good way to reduce volatility and risk. When stocks fell almost 16% from January through March 2020 because of the COVID-19 pandemic, bonds worldwide returned just over 1%.
I���d rather own a bond fund than buy individual bonds. I���d have to own a large number of bonds to achieve the diversification that I get with my bond funds. Also, it would take a lot of time and effort to research and manage those individual bonds.
As a retiree who depends on his investment portfolio for income, an all-stock portfolio would be too risky.
Maybe most important, thanks to my bonds, I sleep better because I���m less bothered by the ups and downs of the stock market.
This isn���t a good time to sell. Bonds have already factored in the market���s expectation that rates will rise. Interest rates have climbed this year, causing a decline in bond prices. It may be too late to gain any benefit from changing my asset allocation.
There���s no better fixed-income alternative. Bonds have better yields than money market funds. Certificates of deposits have liquidity issues���there���s a penalty for early withdrawals. That penalty can mean forfeiting all the interest you���ve earned.
Today���s higher bond yields mean greater interest income.
Even if interest rates continue to rise, reinvesting my interest payments allows me to take advantage���and should boost my returns over the long term.
Having bonds in my investment portfolio is a good way to reduce volatility and risk. When stocks fell almost 16% from January through March 2020 because of the COVID-19 pandemic, bonds worldwide returned just over 1%.
I���d rather own a bond fund than buy individual bonds. I���d have to own a large number of bonds to achieve the diversification that I get with my bond funds. Also, it would take a lot of time and effort to research and manage those individual bonds.
As a retiree who depends on his investment portfolio for income, an all-stock portfolio would be too risky.
Maybe most important, thanks to my bonds, I sleep better because I���m less bothered by the ups and downs of the stock market.
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