Why would you own bonds if the historical average returns of stocks are higher? For nearly the past 100 years, the stock market has returned an average of 10.1% whilst the bond market has returned, on average, 5.3%. When you look at the last 10 years, the figures show even more disparity, stocks and bonds averaging 13.45 and 3.9% respectively.
So why would you include bonds in your portfolio based on these statistics?
During a bullish market, it is easy to lose sight of the value of bonds, because stocks go up, making everybody money, meaning that ‘safer’ investments tend to lose their necessity.
However, as with everything in life, what goes up must come down, and during the less affluent years, stocks become very volatile – between October 2007 and February 2009 not a single US stock fund made money, averaging a loss of 56.8%.
It is during these leaner years that bonds show their true worth. By giving up the potentially large gains during the good years, bond investors avoid suffering large losses during the stock market’s bad times.
In those times when stocks had losses in the double-digits, the bonds markets made double-digit gains.
Having bonds in your portfolio as well as stocks helps to provide financial and emotional security of protecting your retirement savings from significant losses.
So why is this relevant in today’s market? Quite simply, the stocks are at an almost all-time high, which in layman’s terms means it can only go one way… down. Bearing that in mind, the smart investor is loading their portfolio with bond investments.
You will never make stupendous gains with bonds, but what you will do is consistently increase your capital. Bonds are safe and secure, and whilst they will never offer the kind of astronomical windfall that came with, for example, the Bitcoin boom, they will be the smartest hedge against a potential downturn in the markets.
Compare Bonds help these savvy investors by providing recommendations to hedge against the upcoming, inevitable, downturn in the stock market. Register with us now and we will guide you through the stormy seas that are approaching, and make sure you arrive at port with all your capital intact.