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Why would I want to invest in
bonds?
Dear Dollar Diva,
I am 59 years old, and according to the life-expectancy table, I
have another 25 years to live. My father is 83 and still creating
wealth. What is the rationale for putting money into bonds if I
plan to hold the portfolio at least 10 years?
Over the long haul, you can expect a portfolio of
100 percent stocks to outperform a portfolio of stocks and bonds.
But it's not a sure thing. The Diva doesn't think 10 years is a
long enough haul to take that gamble. We've been riding the wildest
bull market in history, but nowhere is it written that the bear
is dead.
Who knows what investments are going to rule over
the next 10 years? Price
earnings ratios have reached new highs, and no one knows for
sure if stocks are overvalued, undervalued or fairly valued. When
you're 25 years old, you can be as aggressive as you want. At 59,
it makes sense to hedge your bets with some bonds.
Bonds are less risky than stocks, especially Treasury
bonds. If you buy a $10,000 Series
I savings bond from the U.S. Treasury, it's never going to be
worth less than $10,000. And I-bonds are adjusted for inflation
every 6 months.
Stocks just aren't paying the dividends they used
to. If you need an income stream, bonds will give it to you. Folks
in a high tax bracket favor municipal bonds; there's no federal
tax on the interest.
The rationale for adding bonds to your portfolio is
to make it safer. Playing "comeback kid" is a tough act for a 69-year-old
who has lost her bet on the bull market.
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DOROTHY ROSEN has a master's degree in finance, with a specialization in accounting,
from the Kellogg Graduate School at Northwestern University in Evanston,
Ill. Rosen has more than 15 years of experience in the financial arena, serving
in Illinois and Florida as a certified public accountant, financial consultant,
expert witness and educator. She is owner of Dorothy Rosen, CPA, a public
accounting firm that serves individuals and small businesses.
