02.03.2020  Author: admin   Workshop Bench Plans
IRA Taxes. Initial Considerations. What's been said: Discussions found on the web. But while interest rates turning stocks into bonds universe bounced up and down the past couple of years, they still remain quite low by historical standards. Besides, even if bond yields do rise, as they will eventually, you'll still be relying socks on the stocks in your portfolio for long-term growth. LendingTree Paid Partner. As for bonds and CDs, market watchers have been saying for upwards of seven years now that yields are going to rise substantially.

One of the most dangerous things an investor can do to a portfolio is to seek bond-like returns from the stock market while taking de facto equity risk on the fixed income side.

In English — to turn their bonds into stocks and their stocks into bonds. Taking equity-like risk on the fixed income side of a portfolio, however, is arguably even worse.

The problem is, you cannot actually do this in real life. When I began my Fortune Magazine column this past fall, my stated intention was to shine a light on the nexus of how things happening in the real world were intersecting with things happening in the investment markets and on Wall Street. In my brand new column, which is number one right now on the Fortune website, I look at the way seven years of zero-percent interest rates have driven investor behavior in bond funds.

By denying the link between heightened risk and heightened reward, investors are merely jumping out of the fire and into the frying pan. I hope you enjoy it and get something useful out of this. As for bonds and CDs, market watchers have been saying for upwards of seven years now that yields are going to rise substantially. But while interest rates have bounced up and down the past couple of years, they still remain quite low by historical standards.

So I can see why you feel you're between the proverbial rock and a hard place. But if you step back and assess your situation, I think you'll find you have more options -- and more wiggle room -- than you seem to believe. Related: How do I know how much I'll need in retirement? The first thing you want to do is arrive at an appropriate mix of stocks and bonds for your retirement portfolio. That means investing enough of your savings in stocks to allow you to harness equities' superior potential for long-term gains even if those gains may not be as strong as in previous years , while at the same time keeping enough in bonds so your retirement portfolio won't suffer a total rout when the stock market takes one of its inevitable periodic dives.

It would be nice if I could tell you exactly how to divide your money between stocks and bonds. But I can't. The blend that's right for you will depend on what size returns you want to shoot for and the risk you're willing to take to get them.

To get an idea of what blend of stocks and bonds might be right for you, you can go to this risk tolerance-asset allocation questionnaire.

This tool will also show you how various blends of stocks and bonds have performed on average and in good and bad markets in the past. Just to be clear: Going through this process and investing your savings in a suitable mix of stocks and bonds isn't a magic bullet. It won't boost bond yields. You have no control over the bond market. Besides, even if bond yields do rise, as they will eventually, you'll still be relying mostly on the stocks in your portfolio for long-term growth.

Nor will divvying up your savings between stocks and bonds immunize your portfolio from downturns in the stock market. But completely avoiding such setbacks isn't your goal. If it were, you could simply stash your savings in CDs and money-market accounts.

But that would mean having to accept even lower returns. Rather, your aim is to limit your downside enough so that you can ride out stock market downturns and participate in the eventual recovery.

So the question becomes how much of a setback can you tolerate before you would panic and dump your stocks? The answer comes down to how much of your savings you invest in stocks. I can't predict the magnitude of future market meltdowns.



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