Birmingham, Alabama: Is the future bright for bonds?

Probably not. You can see on the right side of the chart below that the last 30 years have been nothing short of spectacular for bonds (however, stocks did better) while the 30 year period before that produced much lower bond returns (with stocks doing significantly better than bonds but having roughly the same absolute return in each 30 year period).

Note: remember that bond yields and bond prices move inversely.

Historical Performance of US Bonds

Bond yields should eventually rise to more normal levels. As this happens, intermediate and longer term bonds may post moderate losses like those in 1968 and again in 2000. While bonds may decline in price in the short run, the higher ensuing yields will be positive for portfolios in the long run. Shorter duration and higher quality issues should bounce back much more quickly.

If you have bonds in your portfolio they are there as a diversifier to the equity portion of your portfolio. Global fixed income diversification (developed international and emerging market bonds) is also appropriate and may help to dampen interest rate risk.

investing for retirement ebook ipad - McClain Lovejoy
investing for retirement ebook ipad - McClain Lovejoy
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