facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast blog search brokercheck brokercheck
%POST_TITLE% Thumbnail

"Bonds Are Risky"

"Bonds are risky" is a refrain that we hear often, sometimes in reference to legitimate concerns but more often referring to an exaggerated perception of interest rate risk. Indeed, investing in bonds carries both perceived and real risks, but these risks should be quantified so that they can be understood in context.

The Bloomberg Barclays Capital US Aggregate Bond Index is the most common fixed-income benchmark and only holds investment-grade bonds (so credit risk is somewhat mitigated, allowing us to focus on interest rate risk). When we look at the index's performance over a rolling one-year period (chart below), we see that returns are nearly always positive. Not only are the returns usually positive, but the negative returning periods are relatively mild. Losses over a one-year period have always been contained to between 0 and -5%, except for brief instances in 1980 and 1981 (and these were followed by a pair of massive 30%+ years, as shown below). 

Every investor has unique objectives and constraints, so we are certainly not advocating for or against fixed-income (or any specific sector of it). However, we are advocating that investors quantify risks and put them in context, so that they can make better decisions. 

Of course, the standard disclosures apply: you cannot invest in an index and the future may be different from the past.