On the other hand, if the bonds in question are part of your retirement portfolio, you might want to ride out the tough times. Bonds can be an important diversifier; when stocks crash, they can prevent a total washout. In 2018,was down about 6%, the iShares Core U.S. Aggregate Bond ETF was flat. In 2008, stocks plunged more than 36%, but that same iShares ETF was up 5.2%. Even in their dismal 2022, bonds still beat stocks by nearly 6 percentage points.
Bonds have also performed better historically than the “cash” category, which includes money-market funds. From 1928 through 2022, bonds returned 4.6% annually, compared with 3.3% for cash, according to New York University finance professor Aswath Damodaran. . Also bear in mind that if you decide to temporarily trim your bondholdings, you might find they’re more expensive when you want to buy back in. “That’s where we start to miss out on the returns that the markets tend to give us over longer periods of time,” says Weiss.One more thing to consider: If bonds’ recent performance is dragging your retirement portfolio down, it may be because you’ve overweighted them in your portfolio’s stock-bond mix.
Investors who are far from retirement should own more stocks and fewer bonds because over time stocks are more likely to deliver the gains they’ll need. Investors who are closer to retirement should own more bonds, in part because they can provide a stream of retirement income. One formula for determining the right balance of stocks and bonds is known as “120% minus your age.” If you are 40 years old, for example, you should hold 80% of your portfolio in stocks and 20% in bonds.