Asked on 27 Jun 2020
Given the low interest rate environment, bond yield are low. And when interest rate rises, the bond loses value. Does it still has its place in a diversified portfolio in a recession? (single stocks, global and US focused stock etf, gold, REITs)
As a 21 years old, I don't see a need to hold bond position in my portfolio as long as I can take the risk.(I'm 100% stocks, 95% invested)I have an ultra long term horizon (hence equities) will become my main way of investing. I diversify into both Income (REITS + Non-REITS) and Growth Stocks (Undervalued + Growth Stocks) so that I capture gains in a downturn and upturn. People like Warren Buffett and Peter Lynch do not own bonds in their portfolios because it is purely a hedge against market downturns, and weighs down your potential upside during uptrends. If you learn from history, you will understand that equities trend upwards in the LONG RUN (provided you have solid businesses). A full equities portfolio will almost ALWAYS beat a portfolio of bonds and equities in the LONG RUN.
In conclusion: if you can sleep soundly at night knowing that your portfolio of stocks is down 20%-50%, not panic selling and just stay the course, go full equities. If you are unsure of your risk profile yet, go ahead and buy into some bond ETFs so that your portfolio won't fluctuate too much. When you become more confident, go ahead and sell those bonds and be as aggressive as possible before liabilities/expenses starts to set in in life.
Also your portfolio should align with your own personality, risk profile and time horizon. Everyone is different.
*Different life stage requires different adjustments to your portfolio, I am merely speaking for myself as a young 21 years old investor. Please do your own due diligience!
Hello! As a young investor, you would have a larger appetite for risk, hence I think it's alright to exclude bonds. Furthermore, given the low interest rates due to COVID-19, the yields you get for holding bonds would be low as well.
It'll be alright for you to exclude bonds since you're young and can hold onto your portfolio in the long run!
As a singaporean you are already holding a semi-bond like instrument with bond like yields and that is your CPF OA just that the maturity of this bond is at 55 years old. I think if you agree with that, then adding bonds in your cash portfolio is overweighting it provided that is your asset allocation strategy, then its ok.
I would say that there isn't a need for bonds for young investors in general (highly dependent on how loss adverse you are, if a high-stock weightage causes you to lose sleep at night - you should lower it). Personally, I treat CPF as my bond allocation.
Like what others have said, bonds are mainly used as a hedge for younger investors. As you grow older, your perception might change because bonds provide a decent source of passive income.
But since your question asked about a diversified portfolio, I believe bonds do have a place. In fact, I believe that bonds have a larger place than gold (or cryptocurrency).
The stocks and bonds allocation is using the formula 110-Age. For young investor like us, we should be more aggressive and strive for more returns from stocks.
A lot of professional advisors and individuals would recommend to put in bonds.
I never owned one and it worked 'longterm' (if more than 20 years now can be defined as longterm).
Physical gold (5-10% of portfolio) could serve as an alternative to bring less volatility into a portfolio.
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