Bonds
Hold high-quality bonds alongside stocks so that losses in stocks may be partly offset by steadier, or rising, bond prices.
- When does it start protecting?
- Bonds lower the portfolio’s overall volatility from day one. Whether they offset a stock decline depends on what caused the decline.
- Where does it stop?
- When stocks and bonds fall together, as they did in 2022 when inflation and rising interest rates hit both.
- Is upside limited?
- There is no cap, but a mix of stocks and bonds has historically grown more slowly than stocks alone.
- Is the cost known or unknown?
- Unknown: the return given up by holding bonds instead of stocks.
- Fits best when
- You want lower volatility and steady income over the long run.
- Watch for
- Bonds are least reliable as a hedge when inflation is the problem.