March 20, 2015
Why is it important to own bonds and stocks in a portfolio? What should be considered when adding these asset classes?
Why is it important to own bonds and stocks in a portfolio? What should be considered when adding these asset classes?
It is important to own stocks and bonds in your portfolio as another way to diversify your investments. However, it is critical that you consider what asset allocation to have, and your asset allocation should match your risk tolerance, time horizon, and goals. No one can determine this but you! John Bogle suggests investing your percentage in bonds equal to your age, and the rest in stocks. So I would invest 23 percent in bonds and cash and 77 percent in stocks. This allows for riskier investments at a young age, and more conservative investments as you get closer to needing the money. This is just one suggestion, but again you must decide for yourself!
You want to own stocks to get the most out of your money, stocks will give you the best return over time when you hold a no load index fund at the lowest cost for an extended period of time. Bonds are there to balance out the stocks. When stocks take a big drop bonds will likely go up some and keep your portfolio from going in the negative as much as it would have if you had only owned stocks. You want a balance portfolio that you wont freak out and sell when it takes a hard drop such as in 2008.
Well said you two. I have nothing to add.