Bonds and higher returns!!!!1 Are you mad?
Bond are seen as boring, safe and steady and an asset that provides stable cash flows. Bonds are not seen as high return investments. Given that bonds are viewed as safe and steady, financial advisors normally use bonds to reduce risk on investors portfolio.
Bonds are definitely not used for generating higher portfolio returns.
Bonds can actually help investors in many ways
Bonds need not be used just for adding safety and stability to investors portfolio. Bonds on their own can prove to be a good counter investments to other volatile asset classes and can generate above average returns during periods of high market stress and economic stress. In the 2008 global financial crisis, government bonds, which are risk free and normally yield low returns, generated very high returns even as equity markets fell sharply. Similar was the case during market stress due to covid in 2020.
Bonds can also give investors extra risk appetite to invest in equities. Just by investing the cash flows from bonds into equities can both keep the original capital intact and also add equity returns to the portfolio.
Use bonds effectively for enhancing returns
Bonds can be used smartly by investors. Book profits in equities when there are market bubbles and invest the profits in bonds, which can both protect the profits and also generate high returns even in markets falls. Risk averse investors who recognise the need to take risks but who do not have the ability to take risk on capital, can use bonds to invest in riskier assets. Bonds can also be used by high risk investors to generate high returns by either leveraging their bond positions or by investing in high yield bonds where spreads can fall.
There are many more other ways to use bonds than just for safety and stability.
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