Good posts on why bonds are important in a portfolio

Good posts on why bonds are important in a portfolio

If you’ve been following my blog lately you’ve been noticing that I’ve been questioning why one would ever have any money in bonds in the long-term due to their sub-par performance vs. stocks. I’ve had tons of great comments and I thought I even summarized things pretty good, but in the end I don’t know that I really had it nailed down. I was still able to shoot my mouth off somewhat about how in the long-term stocks are still the best investment and I really kind of wanted someone to stick my foot in my mouth, well maybe not that harsh but there are two great posts about why bonds are a vital part of an investment portfolio.

Well The Finance Buff posted this response to my article on his blog and I think he did make some very good points for having a portion of bonds in your portfolio. He also referenced MakingOurWay’s post on the role of bonds in an investment portfolio a simplification of modern portfolio theory. I love writing that makes things simple and his analogy of bonds being a battery and how that you can leverage that battery during times of poor stock performance to rebalance and buy stocks low is a great way to think about things and I think may have me drinking the bonds are ok kool-aid.

Anyway check these articles out and thanks to everyone who commented on my posts and tried to make me see the light.

  • anon

    There seem to be two schools of thought on rebalancing. Most people simply view it as keeping the level of risk you decided on at the beginning and not letting a bull market throw your portfolio out of whack.

    Others, like makingourway, seem to think that it doesn’t just reduce risk for an acceptable price..it actually increases returns! They’re aren’t alone; here’s one link. http://www.efficientfrontier.com/ef/100/rebal100.htm

    If rebalancing actually increases returns, then MFJ, you and I should dump some of our stock RIGHT NOW! and stick it into bonds. Heheh.

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