Thread: BONDS

Quality Time

Forecasts of interest rate movements often have been
inaccurate. Instead of trying to predict the direction of
future interest rates, you should ask, "What is the purpose
of bonds in my portfolio?" The answer: among diversified
holdings, bonds significantly reduce overall portfolio
volatility and provide a more consistent income stream.

How do bonds reduce volatility? When stocks go down, bonds
may outperform riskier assets. During market corrections,
the S&P 500 Index has lost 5.7 percent, on average, while
Treasury bonds have returned 3.7 percent. When stocks fall,
a flight to quality ensues, driving up bond prices, especially
Treasuries.

Thus, the positive returns of U.S. government bonds during
severe market downturns offers effective diversification
benefits when it is needed most. The more you prize stability
and income, the greater your allocation to bonds should be.

swsop