Is an investment portfolio that includes bonds really safer or does it just feel safer?

Good question!

Yes, bonds are critical to any well designed portfolio. Additionally, as an investor gets older they should increase the percentage of bonds they hold in their portfolio.

Bonds provide passive income. Stocks, unless they are dividend paying stocks, do not provide any income.

By splitting your portfolio with approximately 50% stocks and 50% bonds and other income producing assets like multifamily real estate you get income and you also get growth. As an investor gets older they should be increasing the percentage of bonds and real estate they hold in their portfolio and gradually reducing the stocks.

Younger investors that have a longer time horizon can partake in riskier opportunities like private equity type deals that might have a 20x or 40x return in a few years but also might result in total loss of all capital.

Startup companies can generate tremendous returns on capital sometimes even as much as 100x but they are riskier than blue chip stocks. The mistake I see is an over concentration in blue chip stocks, no bonds, and no shares in startup companies. You need to control risk but not cheat yourself out of good opportunities.

The reason that old ideas on investing are good is that they came about for a reason. In the past when someone put all their money in stocks and then the stock market dropped in value, they often regretted not buying bonds. For one thing if they had bonds they could sell the bonds and buy stocks at the cheaper prices now available.

The main issue today is that the rates of inflation are higher so government bonds are not good nor are corporate income bonds of publicly traded companies. However, if you look at privately held corporate income bonds of a company such as Alamo Mortgage Holdings, Ltd this can earn hundreds of basis points higher and help to offset the inflation in a meaningful way.

I hope that helps and good luck with your investing!

Benjamin Z Miller
www.benjaminzmiller.com