Should i have bonds in my portfolio

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Sign up today. Follow us on Twitter: globeinvestor Opens in a new window. Report an error. Editorial code of conduct. Skip to main content. Nancy Woods. S ince the evolution of the modern bond market, investors have used bonds as a way to diversify their portfolios, generate income and preserve capital.

Investors include bonds in their investment portfolios for a range of reasons including income generation, capital preservation, capital appreciation and as a hedge against economic slowdown. In this section, we look at each in turn. Bonds are considered a defensive asset class because they are typically less volatile than some other asset classes such as stocks.

Many investors include bonds in their portfolio as a source of diversification to help reduce volatility and overall portfolio risk. The chart below shows the historical volatility of different asset classes — including bonds and stocks — over recent decades.

The bars above the horizon zero line show gains, while bars below the horizon reflect losses. You can see from the chart that bonds have a different return profile than stocks, offering the potential for greater stability of returns. Saved Content And Share Content. My Content You have not saved any content. Share Subscribe. Manage Subscriptions. Your Email Address. Recipient Email Address Please enter valid address Email address is required.

I've read keep years of cash, what do you suggest for the remaining funds? That's generally not what I advise. I like the rule of as a starting point. Adjust that up or down for your personal risk tolerance and goals. As far as the rest of it, I'm generally a fan of fixed income and adjusting your fixed income holdings in terms of risk level depending on how much cash you need.

It's definitely a good idea to keep your immediate needs in cash. I'm not talking about your emergency fund, that should be somewhere else. If you're not talking about emergency savings, I'm generally a fan of fixed income for most of the rest of it. For example, if you wanted to tone down the risk on some of your fixed income, you could do a short-term treasury fund or something to that effect.

It lets you get some level of yield out of your investments without just leaving them sitting there in cash. I don't know what TD Ameritrade pays me for cash right now, but it's not much I can promise you that.

It's less than any treasury security would pay me. I'm a fan of having that using the role of as a starting point, and keeping most of the rest of your portfolio in fixed income with an emergency fund on the side in a completely separate account.

Robert Brokamp: Provide my own thoughts. I mean, the years, I think comes from generally what we say at the Fool is any money you need in the next year shouldn't be in stocks so then you would think like cash or bonds. As I said before on the show that for retirees, I think that any money you need in the next three, maybe even five years should be in cash, short-term bonds, diversified bond fund, what I call an income cushion.