“Bonds make bad times better.”
This is the message from investing guru Paul Merriman who is an authority on index investing, asset allocation and active money management.
It was interesting to read Merriman’s recent take on bonds in this MarketWatch article. His article gave me some pause for thought to revisit why I actually do not hold bonds in my portfolio right now. Here are some excerpts from the article and my thoughts to his comments.
“If you want to make the most money, you should invest in stocks. But if you want to keep the money you made in stocks, you should invest in bonds.”
I suspect what Merriman means is along the lines of what Andrew Hallam has preached for many years when it comes to bonds: bonds are parachutes when equity markets fall; bonds will cushion the portfolio landing. Although I do not have a considerable number of years vested in my pension plan, I do consider this a growing “bond” and for that reason I do not invest in bonds right now.
“For most people, the reason to own bonds is to mitigate equity losses during major market declines. Without this mitigation (and sometimes even with it), investors tend to panic when stock prices fall. Instead of considering the possibility of buying more stocks at depressed prices, these skittish investors sell.”
I’ve mentioned a number of times on this blog that I tend to look at major market declines as a wonderful opportunity to buy stocks. I’ve had many conversations with people over the years that look at me like I have two heads when I talk about this. They may never appreciate what I mean but I’ll stay true to my plan: when dividend paying stocks and equity indexed ETFs fall in price I try and buy more.
Bonds seem to make bad times better for investors by protecting investors from themselves when equities tank. If you need bonds in your portfolio to help you do that then by all means hold them to help you stay the course.
What’s your take on bonds? How do they help you?