rise the larger that fall would be.
Looked at in isolation, bonds might
appear to be a poor investment. You get all
the interest rate risk for returns that aren’t
much better than cash savings accounts.
Gaining the highest return isn’t the goal
of all investors. Rather it is to get the return
they require to achieve their financial goals
with a level of risk that is suitable for their
risk profile. This means that investors wish
to reduce the potential for losses.
Reducing the level of risk in your
portfolio isn’t just about holding lots of
investments and hoping for the best.
A portfolio holding of only shares and
property might find everything falling
together and the diversification offering
little protection. Ideally you would like one
part of your portfolio with the potential to
rise when everything else is falling.
There are two choices that could do
this. The first is absolute return funds
like hedge funds. In general, I don’t like
these investments because they are
expensive and often fail to provide the
kind of protection we are looking for. The
only other option is Government bonds
which for the UK are called Gilts. These
have an excellent track record of rising
at times of worry as people seek a safe
haven and anticipate interest rates cuts.
These bonds are your insurance against
economic problems and are an excellent
counterweight to the shares you might hold
to help you make the return you need.
I believe the right portfolio should always
have a decent holding in bonds for this
reason. Finding yourself in the strongest
position at the bottom of the next recession
and bear market is very important. nCONTACT INFORMATION
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