It’s very common to get tips and investment advice every now and then, sometimes from people you work with, and when it’s about bonds, it gets even more exiting. We usually do not base our stock investment decisions on mere tips from someone known to us, as its risky play out there. Then why we act indifferent when it comes to bonds?
Well, bond investments are often ignored by investors as high flying stocks tend to attract them more. I think bonds should be in every portfolio, no matter how old you are. In this article I will help you figure out why US Bonds are Safe Haven Investments and how you should constitute a portfolio in bonds.
First thing about investing that you should know is that debt investments are much safer than equity investments and that’s the key reason that bonds are considered as safe haven investments, following precious commodities gold and silver.
Well, US Treasury Bonds are completely free from any kind of investment risk. These investments suit those investors who follow capital preservation approach.
But remember all bonds do not enjoy the same statue as of government bonds. We have junk bonds which are very risky investments but may offer that extra return to attract investors.
It’s a known fact that in long term returns from stock investments are much higher than bonds. However, we also know that stocks can fall quite sharply and short term investments in stocks can even leave you with negative returns. So, bonds help you steer through rough patches in stock cycles by generating consistent returns and balancing your overall portfolio performance.
Not all have high risk bearing capacity, so most of us desire secure and predictable returns. People don’t like to stay invested in stocks when they are nearing retirement as who would want to take the risk of facing a bear cycle in stocks at that stage, so bonds are their ultimate hideout.
So, take necessary steps to shift your portfolio allocation to bonds if you are retiring soon. On the other hand if your investment time frame is much longer and you can take the risk of holding stocks through a bear market cycle then a major part of your portfolio should remain in high quality stocks.
Surely yes, anyone could tell you that. Moreover, bonds generate higher percentage of returns than bank deposits. At present you should stick to bonds as returns on bank deposits are way to low to help you beat inflation.
Well, there is no simple allocation pattern that one should follow. It entirely depends on personal investment style and age of the investor. Young investors can enjoy party in stocks and take minimal exposure in bonds, whereas someone crossing the age of 40 years should start shifting towards bonds big time.
I know that stocks have the power of attraction but bonds should not be ignored as they provide stability to your portfolio. Above all, the risk factor is minimal while you invest in bonds, so these should be considered as conservative investment option.