Financial Focus - Client Question: Is it the end of the 60% stock / 40% bond portfolio? Do we really need bonds anymore?
I recently read an article declaring the “end” of the 60/40 portfolio of stocks and bonds. Should we be selling our bonds? In the article, the authors suggest that the relationship between stocks and bonds has changed over time and that investors can now buy many stocks that will provide a higher level of income than bonds. They note that the benefits of bonds, diversification and risk reduction, are weakening.
While this may be true in general, we believe there are reasons that you should keep bonds. Individual bonds provide income, as well as principal protection. Investing in individual bonds and holding them until maturity, or the call date, enables you to effectively manage interest rate or market risk. Bonds can also help you manage your liquidity needs. Income is not the only consideration. Yes, you do have to be careful about what bonds you buy, but the benefit of risk reduction has not weakened. In fact, in volatile markets, it holds true now, as much as ever.
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Information contained herein was derived from third party sources including, but not limited to, Bloomberg, Standard & Poor’s, Dow Jones & Company, the Federal Reserve Bank of New York, and Morningstar, Inc. While the information presented herein is believed to be reliable, no representation or warranty is made concerning the accuracy of any information presented. We have not and will not independently verify this information. Please contact us if you would like to obtain a copy of the third party sources.