Al Clopine, CPA, sits down with CEO and Founder of Pure Financial Advisors, Mike Fenison, to discuss the role of bonds in your portfolio. Fenison explains that even with the low interest rate environment, part of your portfolio should be invested in bonds to stabilize it for stock market volatility and to provide liquidity in retirement. Find out the types of bonds you should hold and how your portfolio should be allocated with bonds versus stocks according to your risk tolerance.
0:15 “Given the market conditions, given the stock market is at or near all-time highs, everyone’s saying there’s a bond bubble, so should people still invest in bonds?”
0:32 “The main advantage of bonds is that it gives you a relatively predictive way of controlling the risk in the portfolio”
0:52 “We can’t really predict the direction or magnitude of stock market changes, but if you add a bond component to that, you could mitigate that volatility and you can control it so that it matches with the cash flow requirements of the client or matches up with their financial planning”
1:55 “Given this economic climate, with interest rates pretty low and at some point they’ll likely go up, what kinds of bonds should people be looking at?”
2:11 “In general, you want to be looking at shorter term, higher quality bonds; you’ll avoid some of the credit risk with high quality bonds, and the shorter the duration or maturity of the bond, the less interest rate sensitive it’s going to be”
2:29 “There’s an inverse relationship, as interest rates go up, bond prices actually go down”
3:01 “It’s really important to tie those maturity dates and duration of the bond to what your cash flow requirements are so that you’re not forced to liquidate those bonds before you need the money”
4:37 “Not all bonds are going to react the same to the same stimulus in the economy”
