Just booked a long-anticipated vacation? Celebratory dance! Just enrolled in the maintenance plan for your HVAC system? That’s far less exciting. But when your AC quits in a heat wave, you’ll be dancing when the tech shows up for priority service.
As investors, sometimes we need a reminder why we enroll in the less flashy stuff, too. 2022 was a tough ride for both equity and fixed-income investors. And as the Federal Reserve (Fed) continues to fight inflation, fixed-income investors in particular are likely to face additional volatility and challenges.
With interest rates and volatility on the rise, it wouldn’t be surprising if you’ve wondered what bonds have done for you lately. But similar to how signing up for just-in-case maintenance can keep you cool in a pinch, bonds can help us maintain our portfolios’ cool, too. Especially today, it’s important to remember why we bother with bonds in the first place: diversification.*
Team Bonds vs. Team Stocks: It’s Not Really a Competition
There’s a give and take to diversified, balanced portfolios. 2022 was the exception, not the rule: It was one of just a handful of years on record in which both stocks and bonds both produced negative returns for the year. Generally, when stocks have been volatile, bonds have provided a welcome degree of stabilization.