Rough Start for Bonds
Yep – bonds have had a rough few months. Which is strange because usually bonds are the part of a portfolio which brings the most reassurance.
When a diversified portfolio is constructed, it will often include both bonds and stocks….alongside other asset classes.
- The bonds are there to seek to help fight one of the main financial risks to investors, which is nasty down cycles in stocks. Obviously, stocks cannot do this.
- And the stocks are there to seek to help fight one of the other main risks, which is the ever-present and insidious rising cost of living (aka inflation). Bonds cannot do this.
When interest rates are going up, bond returns may be low or even slightly negative, but their low volatility and diversification benefits endure. You can read more about this here.
So how have bonds fared in the past after experiencing a few rough months? Quite well. In part thanks to rising interest rates resulting in more interest being paid to bond owners, historically bonds have rebounded quite strongly after a rough patch.
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The Bloomberg U.S. Aggregate Bond index is a measure of the investment grade, fixed-rate, taxable bond market of roughly 6,000 SEC-registered securities with intermediate maturities averaging approximately 10 years. The index includes bonds from the Treasury, Government-Related, Corporate, MBS, ABS, and CMBS sectors. It is unmanaged and cannot be invested into directly.
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