When should I switch investments to bonds?
If your time horizon is between two to 10 years, a mix of stocks and more conservative investments such as bonds may be best; and if it's less than two years, you may want to consider some income-generating investments along with investments that tend to be lower risk.
Historically, when stock prices rise and more people are buying to capitalize on that growth, bond prices typically fall on lower demand. Conversely, when stock prices fall, investors want to turn to traditionally lower-risk, lower-return investments such as bonds, and their demand and price tend to increase.
With more than a decade or two of working years left until retirement, it's important to maintain the growth potential of your portfolio through an appropriate allocation to stocks. In your 50s, you may want to consider adding a meaningful allocation to bonds.
Short-term bond yields are high currently, but with the Federal Reserve poised to cut interest rates investors may want to consider longer-term bonds or bond funds. High-quality bond investments remain attractive.
Many bond investors wonder if there is an optimal time to buy bonds. The answer is both yes and no, depending on why you're investing. Investing in bonds when interest rates have peaked can yield higher returns. However, rising interest rates reward bond investors who reinvest their principal over time.
Vanguard's active fixed income team believes emerging markets (EM) bonds could outperform much of the rest of the fixed income market in 2024 because of the likelihood of declining global interest rates, the current yield premium over U.S. investment-grade bonds, and a longer duration profile than U.S. high yield.
In line with the outlook from other investment providers, the firm is forecasting a 5.7% gain in 2024 for U.S. investment-grade bonds, versus 4.9% last year and 2.3% in 2022. (All figures are nominal.)
Should I only buy bonds when interest rates are high? There are advantages to purchasing bonds after interest rates have risen. Along with generating a larger income stream, such bonds may be subject to less interest rate risk, as there may be a reduced chance of rates moving significantly higher from current levels.
In the short run, rising interest rates may negatively affect the value of a bond portfolio. However, over the long run, rising interest rates can actually increase a bond portfolio's overall return. This is because money from maturing bonds can be reinvested into new bonds with higher yields.
As investors start to anticipate a recession, they may flee to the relative safety of bonds. Typically, they're expecting the Federal Reserve to lower interest rates, helping to keep bond prices up. So going into a recession may be an attractive time to purchase bonds if rates haven't yet fallen.
Can you lose money on bonds if held to maturity?
If you're holding the bond to maturity, the fluctuations won't matter—your interest payments and face value won't change. But if you buy and sell bonds, you'll need to keep in mind that the price you'll pay or receive is no longer the face value of the bond.
When rates go up, bond prices typically go down, and when interest rates decline, bond prices typically rise. This is a fundamental principle of bond investing, which leaves investors exposed to interest rate risk—the risk that an investment's value will fluctuate due to changes in interest rates.
After weighing your timeline, tolerance to risk and goals, you'll likely know whether CDs or bonds are right for you. CDs are usually best for investors looking for a safe, shorter-term investment. Bonds are typically longer, higher-risk investments that deliver greater returns and a predictable income.
| Face Value | Purchase Amount | 30-Year Value (Purchased May 1990) |
|---|---|---|
| $50 Bond | $100 | $207.36 |
| $100 Bond | $200 | $414.72 |
| $500 Bond | $400 | $1,036.80 |
| $1,000 Bond | $800 | $2,073.60 |
- Historically, bonds have provided lower long-term returns than stocks.
- Bond prices fall when interest rates go up. Long-term bonds, especially, suffer from price fluctuations as interest rates rise and fall.
No, I Bonds can't lose value. The interest rate cannot go below zero and the redemption value can't decline.
- PGIM Short-Term Corporate Bond (PSTQX)
- Pimco Diversified Income (PDIIX)
- Schwab Short-Term U.S. Treasury ETF (SCHO)
- Vanguard Long-Term Corporate Bond Index/ETF (VBLLX) mutual fund (VCLT) ETF.
Bond Index Return – Between 2.52% and 11.85%
S&P 500 Bond Index: 10-year running average of 2.52% Vanguard bond market index fund: 10-year average of 9.06% Blackrock Aggregate Bond Index Fund: 10-year average of 7.93% Bloomberg US Aggregate Bond Index: 10-year average of 11.85%
We are revising up our end-2024 and end-2025 forecasts for the 10-year Treasury yield by 25bp, to 4%. This reflects recent changes to our projections for the federal funds rate.
As inflation finally seems to be coming under control, and growth is slowing as the global economy feels the full impact of higher interest rates, 2024 could be a compelling year for bonds.
Will bonds bounce back?
The bond market will bounce back from this year's historic rout to have a stellar 2024, Goldman Sachs Asset Management strategist says.
In 2024 we remain positive on the credit market, anticipating strong total returns and continued demand from yield and duration buyers. Investors are looking to add high-quality duration and to move away from short-maturity investment solutions, made less attractive by major central banks' expected interest rate cuts.
purchase bonds in a low-interest rate environment.
The longer the bond's maturity, the greater the risk that the bond's value could be impacted by changing interest rates prior to maturity, which may have a negative effect on the price of the bond.
- Vanguard Total World Bond ETF (BNDW)
- Vanguard Core-Plus Bond ETF (VPLS)
- DoubleLine Commercial Real Estate ETF (DCRE)
- Global X 1-3 Month T-Bill ETF (CLIP)
- SPDR Portfolio Corporate Bond ETF (SPBO)
- JPMorgan Ultra-Short Income ETF (JPST)
- iShares 7-10 Year Treasury Bond ETF (IEF)
- iShares 10-20 Year Treasury Bond ETF (TLH)
| Best Short-Term Bond Index Funds | Ticker | Return % |
|---|---|---|
| Fidelity Short-Term Bond Index | FNSOX | 1.49 |
| iShares 1-5 Year Inv Grade Corp Bond ETF | IGSB | 2.38 |
| SPDR Portfolio ST Corp Bond ETF | SPSB | 2.17 |
| Vanguard ST Corp Bond ETF | VCSH | 2.29 |
