Like virtually all investment products, bonds generate returns that fluctuate from year to year. Longer-term stocks have enjoyed a performance edge, outperforming bonds by a margin of almost 2 to 1 since 1926. But there is a tradeoff: Stocks' performance edge has come with more uncertainty and bumps in the road. But bonds—even U.S. Treasury bills—can have their ups and downs, too.
Source: Ibbotson Associates, Inc.
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| Smart Move As your time horizon shortens, and with it your need for more stable investments, adjusting your portfolio to include a greater percentage of bonds is generally recommended—in part because bonds and stocks tend to move in different directions. In other words, when stock prices rise, bond interest rates often fall, and vice versa. Finding the right investment mix depends upon your age, financial objectives and tolerance for accepting a higher level of risk in return for a greater potential return. For more information, see the Asset Allocation section of FINRA's Smart 401(k) Investing. |
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