Bonds are a type of investment that allow individuals to lend money to governments, corporations, or other organizations. They are designed to protect investors from inflation, and are a great hedge against stock market volatility. A popular type of bond is the I Bond, which has a current interest rate of 6.89%. This rate will last until the end of 2020.
A diversified portfolio consists of multiple asset classes like stock, Bonds, and cash. The ratio of each asset should be held according to your risk tolerance, goals, and time horizon. For example, if you’re planning on retiring in the next 10 years, you may want to shift more of your portfolio into Bonds, since they are less volatile than stock and offer a steady stream of income.
According to Brent Schutte, chief investment officer with Northwestern Mutual, Bonds offer an attractive hedge against stock market volatility and can help provide a layer of stability to your portfolio. Schutte recommends that investors consider allocating between 20-40% of their portfolios to Bonds, depending on their risk tolerance and goals.