The Reason You Own Bonds
Updated: Aug 20, 2020
There is one headline you probably will not see today: Investment grade bonds are up over 4% so far in 2020.
If you have ever wondered why you own bonds in your portfolio, you need not wonder anymore. Today is the reason why.
The stock market will do what it is doing right now much more often than you realize. A 10% pullback happens on average every year and a 20% pullback happens on average every 5 years. That is part of the experience you sign up for when you invest in the stock market. No, you can not get out and avoid the pain while also participating in the gains. They come hand in hand.
But what you can do is own enough bonds to endure the downturns. Every client has a specific plan laid out for them. If you are close to, or in, retirement you likely have 6 to 10 years of living expenses socked away in high quality, short and intermediate term bonds. Bonds we set aside exactly for days like today and possibly for the next couple weeks or months, depending what happens next. Bonds that can sustain your income until the market has time to recover. It is all in your plan.
While these days do not feel good, please take heart in the fact that your plan was designed to weather this. Days like today are why you own bonds.
And if you don't own any bonds it is probably because you are still a long ways off from retirement. In that case, days like today are buying opportunities. We don't know what the future holds, but we do know that stocks are cheaper today than they were yesterday. And buying when things are low typically pays off in the long run.