As global economies continue to grapple with the impact of the COVID-19 pandemic, investors are left wondering where to put their money. One asset class that has been the subject of much debate is bonds. With interest rates at historic lows and market volatility remaining high, are bonds a good investment right now?
"I don't think it's a bad investment, but it's certainly not as attractive as it once was. But if you're investing for the long term, now is a great time to boost your bond holdings," says one financial expert. With stocks still experiencing significant fluctuations, bonds can provide a measure of stability to a diversified portfolio.
Recent events, such as the historic loss suffered by Credit Suisse Group bondholders, have left some investors wary. Pacific Investment Management Co., Invesco Ltd., and BlueBay Funds Management Co. SA were among the many asset managers holding these bonds.
"It's not that the bonds weren't supposed to take some of the blow from market downturns, but the magnitude of the loss was unexpected. This could dampen enthusiasm for new issuance for a while,” said Luke Hickmore, an investment director.
Despite these concerns, bonds can still serve as an important component of a well-rounded investment strategy. As Morningstar's Christine Benz points out, "It's a really good question, and this is what we're talking about when we say that the bond market is unattractive. I think everyone hates bonds right now."
However, as investors look for ways to protect their capital, bonds can offer some benefits. For example, building an emergency fund using bonds can provide a measure of security during uncertain times.
Another advantage of investing in bonds (particularly I bonds) is that they can provide a hedge against inflation, should it begin to rise in the coming months.
Of course, it's essential to carefully evaluate the types of bonds in which you're investing. Over 60% of the bonds owned by the DoubleLine Yield Opportunities Fund are below investment grade, which may not be suitable for all investors.
Government bonds, often referred to as "riskless assets," can provide a safer option for those looking to minimize risk. However, the trade-off is that these bonds typically provide lower returns, as they are considered "super safe, not super profitable."
Another option for investors is to focus on dividend-paying stocks or other income-generating investments. “Some good things about this are that you make money regularly, and you don't have to pay taxes on what you earn until you take it out,” says one investment advisor.
In summary, while bonds may not be the most attractive investment option in the current economic climate, they can still provide valuable benefits for long-term investors. By carefully considering the types of bonds and their associated risk, investors can make informed decisions about whether to include bonds in their portfolios.
