Do Bonds Offer Immunity Against Market Turbulence? | The Informed Investor 35

Episode 35: What are the best reasons to invest in bonds? Maybe you’re looking to dampen the volatility of your portfolio or address future spending needs in a concrete way. Maybe you want to reduce the impact of inflation or taxes. Bonds, also known as fixed income, can be used to meet a variety of needs. But different bond categories may be better or worse for accomplishing your goals. A crucial point that some investors might not understand: Putting bonds to work in your portfolio can get complex in part because not all of them behave the same way. If you have short-term spending needs, extremely short-term bonds like Treasury bills may be helpful. (Cash is obviously an alternative.) But longer-term bonds may be more useful as you plan for longer-term saving and spending needs. The credit quality of bonds makes a difference, too. Those issued by the US government and successful businesses are generally considered safer, and typically have lower interest rates. The opposite is true for bonds with lower credit quality. Your goals may steer you one way or the other. Some types of bonds, known as Treasury Inflation-Protected Securities (TIPS), can help manage the risks of inflation. That’s important because an average annual inflation rate of just 2.5% over 30 years reduces your purchasing power by half. Yet TIPS aren’t risk-free, another characteristic that may confuse some investors. In Episode 35 of The Informed Investor, Dimensional’s Mark Gochnour, Head of Global Client Services, Wes Crill, PhD, Senior Client Solutions Director, and Jake DeKinder, Head of Client Communications, identify five reasons to consider investing in bonds and analyze what types of fixed income should (and shouldn’t) be used to meet your goals. TIME STAMPS 00:00 Intro 03:11 Headlines 04:52 Managing portfolio volatility with bonds 06:03 Equities and portfolio volatility 06:26 Standard deviation and bond categories 07:05 Meeting short-term spending needs with bonds 08:10 Bond performance when stocks decline 08:59 Growth vs. stability/safety 10:17 Asset allocation and risks related to bonds 11:33 Managing inflation risk with bonds 14:21 Liability-driven investing 17:35 Bond ladders 19:06 Addressing tax concerns with bonds 19:27 Key takeaways LINKS FROM TODAY’S EPISODE: The Informed Investor: Feedback Survey https://www.dimensional.com/us-en/inf... Dimensional Perspectives: “Chutes and Bond Ladders” https://www.dimensional.com/us-en/ins... Dimensional Perspectives: “Sizing Up the Bond Market” https://www.dimensional.com/us-en/ins... “The Informed Investor” on YouTube    • The Informed Investor   Dimensional Fund Advisors Shorts on YouTube    / @dimensionalfundadvisors   Mark Gochnour on LinkedIn   / mark-gochnour-9a23598a   Wes Crill on LinkedIn   / wes-crill-77a49417   Jake DeKinder on LinkedIn   / jake-d-4105b98   Learn more at https://www.dimensional.com/ #bondmarket #interestrates #whatisthebondmarket #corporatebonds #inflationprotection #treasuryinflationprotectedsecurities #munibonds #duration #termandcredit #liabilitydriveninvesting #treasurybills #dimensionalfundadvisors #dimensional #dfa