We build diversified portfolios for our clients based on needs, goals (rate of return requirements) and risk tolerance. Right now, bonds still play a key role in portfolio construction primarily as a buffer against volatility. This is especially true for high-quality bonds such as corporate and short-term Treasuries. Historically, this philosophy has proven to be successful.
Bonds as a money-making investment have lost some of their luster. With rates so low, yields on most bonds are not very attractive (unless you are willing and able to assume an undue amount of risk). That said bonds have consistently had positive returns through the years. It really boils down to where interest rates are.
But rising interest rates—a common current prediction among pundits—don’t necessarily mean that bonds are suddenly going to tank. Historically, bonds have offered decent returns despite periods of rising interest rates. This also holds true for periods of high inflation even though inflation typically eats away at investment returns.
Clearly, the demise of the bond market due to rising interest rates or high inflation is greatly exaggerated. One of the main reasons for the resilience of bonds is that investors tend to flock to them during periods of uncertainty
