Bonds Are Optional
Every investment should have a specific job.
What This Means
Many investors are told their portfolio should always include a certain percentage in stocks and a certain percentage in bonds. While that may be appropriate for some people, we don’t believe every investor automatically needs bonds.
Bonds can be an excellent investment. They can provide income, help reduce volatility, preserve capital, or simply add stability to a portfolio. In the right situation, they can play an important role. We use bonds when they help accomplish a specific goal.
But that’s the key—we believe every investment should have a purpose. If bonds don’t help you reach your goals there’s no reason to own them simply because you’ve been told every portfolio needs a certain allocation.
Instead of starting with a rule of thumb, we start with the investor. What are you trying to accomplish? What level of risk are you comfortable taking? How much income do you need? Once those questions are answered, it becomes much easier to determine whether bonds belong in your portfolio—and if they do, exactly what job they’re there to perform.
The question isn’t whether bonds are good or bad. The question is whether they belong in your portfolio.
Common Questions
What is the purpose of bonds in a portfolio?
They can help reduce volatility, provide attractive interest on money you’re holding for future opportunities, or provide cash for withdrawals during a market downturn so you don’t have to sell stocks at depressed prices. The important thing isn’t simply owning bonds—it’s understanding why you own them. Like every investment, they should have a specific job.
What’s the difference between stocks and bonds?
Stocks represent ownership in a company and are generally used for long-term growth. Bonds are loans to governments or companies and are often used to generate income or reduce portfolio volatility.
Remember This:
Bonds are a tool. Not a requirement.