When it comes to the diversification hierarchy after you own stocks, you own bonds.
And the reasons to own bonds are great. As fixed income investments, their steady coupon payments and return of principal make them a strong ballast for your portfolio. Because of this, bonds have long been the best way to smooth out a portfolio’s volatility and strengthen long-term returns.
But lately, investors have been questioning the role of bonds in a portfolio. Thanks to a variety of factors, bonds aren’t looking like the best hedge and some analysts actually expect them to lose money over the few years.
However, according to some investment managers, bonds still have a place in your portfolio. Many of the fears may be overblown in the long term.