Bonds and similar risk-off assets are an important component of a well-diversified portfolio.

Diversification can work even when it feels like you’re losing!

A well-diversified portfolio should be tailored to your long-term goals and appropriately match your individual risk tolerance. Investing in different market areas across multiple asset classes will limit your portfolio’s ups and downs, but it doesn’t always feel good!

You may feel like you’re losing when your diversified portfolio isn’t performing as well as the S&P 500 performed. However, over the long term, a diversified portfolio can help you capture a large portion of the upside of the market and a smaller portion of the downside.

For more details on how to deploy your army of dollar bills to better fit the stage of life you are in, we made this show:

Video: Financial Planning 101 (By Age) 2023 Edition

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So, why should I invest in bonds?

Historically, equities have outperformed fixed-income securities, but looking at performance without taking into account risk reduction only tells part of the story. In addition to reducing the volatility of your portfolio, there is an income component from the interest paid to you for holding the bond. Both of these are very important as you are constructing a portfolio for your glide path to and in retirement.

To better understand how different asset classes can combat inflation, we made this show:

Video: How to Protect Your Money from Inflation!