It is a common misconception that bonds are only valuable to older conservative investor or for young children as savings bonds. That is simply not the case. Bonds can be an important factor for a strategically balanced portfolio at every stage of your life. Bonds can be valuable for a portion of your portfolio and may be beneficial for your future.
Bonds help with Volatility
Even though every investment has some risk, bonds typically won’t be as volatile as other investments. By owning bonds it can help create an overall investment portfolio that potentially generates less volatile performance over time. Often both markets move in different directions; the bond market rises when the stock market falls and vice versa. If the stock market is down, the performance of bond investments can sometimes help compensate for any losses. Therefore having bonds and some stocks can help reduce your portfolio’s volatility during stock market declines.
Short or Long Term Bonds: Both Offer Steady Income Potential
When you first decide to purchase a bond, you have to take into consideration the bond’s maturity, and whether or not you would want a short or long term bond. Owning bonds for a longer period of time in your portfolio will generally allow the bond to produce a higher potential yield and produce greater overall return potential. Most bonds do typically pay interest semiannually, which means owning bonds can provide a predictable income stream.
Conclusion: Benefits of Bonds
By having bonds in your portfolio allows you, the investor, the ability to maintain a diversified portfolio. It also generally allows the investor a potentially lower volatility approach and a well thought out plan in regards to your portfolio strategy.
Owning bonds generally encompasses useful benefits including but not limited to lower volatility and potential income. Whether you have a specific purpose for investing in bonds, owning bonds in your portfolio may be a suitable investment in helping you reach your financial goals.
Building your portfolio takes time and discipline along with a plan. At Magellan Financial we have developed a plan to help make informed decisions by understanding your financial situation. To schedule an initial consultation or learn more about how Magellan Financial can help you plan successfully, please call us at 610-437-5650 or email us at Rob.Cahill@wfafinet.com.
- Investing in fixed income securities involves certain risks such as market risk if sold prior to maturity and credit risk especially if investing in high yield bonds, which have lower ratings and are subject to greater volatility. All fixed income investments may be worth less than original cost upon redemption or maturity. Bond prices fluctuate inversely to changes in interest rates. Therefore, a general rise in interest rates can result in the decline of the value of your investment.
- Stocks offer long-term growth potential, but may fluctuate more and provide less current income than other investments. An investment in the stock market should be made with an understanding of the risks associated with common stocks, including market fluctuations.
- Wells Fargo Advisors Financial Network did not assist in the preparation of this report, and its accuracy and completeness are not guaranteed. The opinions expressed in this report are those of the author(s) and are not necessarily those of Wells Fargo Advisors Financial Network or its affiliates. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Additional information is available upon request.
Diversification does not guarantee profit or protect against loss in declining markets.
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