Reducing bonds? Proceed with caution
April 19, 2013
Today's low yields from investment-grade bonds are leading some investors to question the bonds' role in a balanced portfolio. A new Vanguard research paper by Francis M. Kinniry Jr. and Brian J. Scott affirms that low-yielding bonds do not offer the same high-return potential or portfolio protection from equity market volatility as in the past. However, the authors stress that the role of high-quality bonds as a diversifier, especially during sharp equity market declines, remains intact regardless of yields and justifies their inclusion in balanced portfolios.
- Investments in bonds are subject to interest rate, credit, and inflation risk.
- All investments are subject to risk, including possible loss of principal.
- Past performance is no guarantee of future returns.
- Diversification does not ensure a profit or protect against a loss.
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