Quote:
Originally Posted by Nords
If an investor's concerned about loss of bond value (not loss of income but the unrealized capital losses) then it might perhaps be better to reduce a portfolio's volatility by replacing the bond asset allocation with cash for the next year or two.
Of course then we'd all stop complaining about dropping bond prices and kvetch about minimal yields on our CDs.
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To be clear, I'm not claiming bonds are choice #1 where preservation of principal is concerned. But they are a heck of a lot better at it than stocks are while at the same time usually being able to comfortably outpace inflation. With 100% stocks, one could lose 25% of their portfolio in one day. That type of event is simply not a concern with high quality bonds.
Again, my point is just to say they do more than "reduce volatility". They do that by preserving your money!