Why bonds matter in diversified portfolios


Hartford Funds

With yields so low and ongoing threat of volatility, it wouldn’t be surprising if you’ve wondered what bonds have done for you lately. In addition, stock indexes have reached multiple record highs this year, and the high returns and wild volatility of speculative investments such as cryptocurrencies and meme stocks are frequently in the news headlines.

As investors, though, we sometimes need a reminder of why we enroll in the less flashy asset classes. With bonds, one answer is diversification.

 

It’s not a competition between bonds and stocks

There’s a long-term give and take within diversified, balanced investment portfolios. In some market cycles, like the current one, stocks soar and leave bonds in the dust. But in other cycles, stocks experience downward price pressure and volatility while bonds provide a welcome degree of stability.

In other words, a well-diversified portfolio could provide you with a smoother experience overall as one asset class is likely to outperform as another underperforms at any given moment. As shown below, all the portfolios generated significant positive returns over 20 years, but the balanced one provided a less turbulent journey.

 

These figures are shown for illustrative purposes only and are not guaranteed. They do not reflect taxes or investment/product fees or expenses, which would reduce the figures shown here. Past performance is not a guarantee of future results.

 

Unfortunately, there’s no telling which asset class the market is going to favor in any given year. That’s one of the reasons why personalized financial advice is so important — to prepare for the uncertainties of tomorrow.

Amid the continued interest-rate uncertainty, here are three fixed income strategies you may want to discuss with your Ameriprise financial advisor:

  • Core-plus funds, which hold a foundation of investment-grade bonds but have the flexibility to augment that core with opportunistic bonds across economic cycles
  • Bank loans, which have floating or variable short-term interest rates
  • Multi-sector approaches that are flexible and adaptable to a rapidly changing environment

Whatever you decide to help support your financial goals, working with your Ameriprise financial advisor is essential. They have the experience and resources to provide personalized recommendations that account for fixed income opportunities and risks over the long term.