One reason asset allocation strategies
are so popular among investors is that they intuitively make sense.
Most people think of the stock market as being the riskier place to put
their money, but that they'll receive potentially greater rewards from
investing in stocks. Conversely, the popular view of the bond market is
that it's the place for conservative investors to park money they can't
afford to lose, with bond buyers willingly sacrificing growth potential
in exchange for the relative stability and steady income that bonds
typically promise.
But recently, all the conventional wisdom about stocks, bonds, and
asset allocation has gotten turned on its head. Even as the stock market
has risen to all-time record highs, bonds have suffered big price
declines that have awakened many bond-fund investors to the reality that
their bond investments can actually lose money.
With the specter of further rate increases in the future as the Federal
Reserve contemplates an exit from its quantitative-easing bond
purchases, one question arises: Do asset allocation strategies that
advocate owning bonds still make sense? (more)
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