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. While the stock market soared in 2021, it was a tougher ride for fixed-income investors. And now, as the Federal Reserve (Fed) raises interest rates in an attempt to rein in high inflation, fixed-income investors 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 like 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. Sometimes, stocks soar and leave bonds in the dust (ahem, 2021). But other times, stocks are volatile and bonds provide a welcome degree of stabilization.