WHY BONDS?

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BY KRISTIN HOVENCAMP

Kristin Hovencamp, Director of Business Development at HAZLETT WEALTH MANAGEMENT, LLC

A bond is an instrument of indebtedness. Companies and governments issue bonds to raise capital by borrowing from investors. When an investor purchases a bond, they are buying the bond issuer’s debt. The bond’s issuer is committed to paying the bondholder the principal amount and the pre-established interest when the bond reaches maturity.

Bonds are not risk-free. Before purchasing a bond, be aware of the bond’s maturity date, credit quality, liquidity, and geographical location. Bonds also come with interest rate risk, as their principal value is sensitive to changes in interest rates.

Bonds have experienced a historic 40-year bull market run. In the third quarter of 1981, the Treasury 10-year note yielded approximately 15.75%. In the third quarter of 2021, the 10-year was paying about 1.5%. As yields have diminished and bonds have offered lower and lower interest, what role does fixed income now play in your portfolio?

Unsurprisingly, the bond market continues to grow at a constant rate, outpacing equity market growth. According to the Securities Industry and Financial Markets Association, in 2020 the global bond market’s outstanding value was $123.5 trillion and the global equity market capitalization was $105.8 trillion.

There are benefits of holding both stocks and bonds in a diversified investment portfolio. When you invest in a stock, you are buying equity ownership in the company. Stocks have unlimited upside potential but also more volatility. Bonds may help mitigate equity risk due to their less volatile nature, greater stability, and promised income stream. As complementary assets, stocks and bonds have different risk-return profiles and react differently to changing market conditions.

Bonds continue to be an anchor in a long-term investor’s portfolio due to their ability to yield income and help reduce risk. As an asset class, fixed income diversifies a portfolio and offsets investments in other assets.

 HAZLETT WEALTH MANAGEMENT, LLC is independent of Raymond James and is not a registered broker/dealer. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc. Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance may not be indicative of future results. 675 Sun Valley Road, Suite J1 + J2 Ketchum, Idaho 83340 208.726.0605. HazlettWealthManagement.com