Many of our readers have asked, why have bonds in the investment mix at all? To help alleviate Volatility provides part of the answer. Bonds should be more stable than shares and provide some support if stock markets fall. Good quality corporate bonds have provided strong returns in their own right. They gained sharply in value after the credit crunch as interest rates decreased and have since stayed down. They have also benefited from the large buying programmes carried out by the US and UK  authorities. In general,bonds should provide a positive return over their lives, providing a regular income and offering repayment of your capital on maturity. They should fall less when stock markets are retreating, but will not usually rise as fast as shares when the equity markets are rising. This stabilising influence that bonds can have is important in any portfolio that targets real returns above inflation.

 

It does not look like the UK or US governments will stop buying bonds any time soon. Infact, Japan has just developed a new passion to buy more bonds. The authorities of the advanced countries are far more nervous about slow growth and no growth than they are about inflation. They want to promote growth and lending by creating extra money to buy bonds. Whilst interest rates are kept at historic lows, it looks likely that the short term outlook for corporate bonds remains good.

 

For more information on bonds download our free ebook www.pinkinvestments.org/index.php

 

*The contents of this article are based on our own personal opinions. This is general information only and does not constitute investment advice.