Everyone talks about bonds as the asset reducing volatility, but I don't really care about that on 20 years horizon. I do care if interest rate may increase and stay that way for a long time. That being said, I don't see it happening, simply because it would bankrupt a lot of companies and the government.
Interest rates may fluctuate - they may be 0, or negative, or positive and quite high.
I am wondering about risks of that, and how can bonds help.
I know it's simplification, but I see it this way:
- 0% interest rate - stocks soar, bonds are nearly useless.
- Negative interest rate - stocks soar, new bonds are straight up harmful. bonds you have soar.
- Positive interest rate - stocks are not so great, bonds stronk. But new bonds are stronk, the one that you have have plummeted
Then owning bonds only makes sense if interest rates are already positive and you expect them to go down? Which is essentially betting and not a recommended strategy.
Pls help I'm confused if I need bonds at all if I don't care about volatility.
Edit: after posting I realized that bonds are beneficial in portfolio, because even if interest rates are 0%, it may become negative, and then even more negative. Then the bonds you own go up. If the interest rate goes up, you still earn something on existing bonds and new ones earn you coupons.
Submitted June 05, 2024 at 01:34AM by Organic-Maybe-5184 https://ift.tt/Lnx2oRQ
