In a recent Blog post, I revealed how Millennials may want to think about fixed income in their portfolios. Bonds can play an important role in managing portfolio risk, even if you have a long investment time horizon. What’s more, bonds aren’t just for people in retirement or Millennials; they can be incredibly useful for other life stages as well.
Bonds for your First Home
If you’re saving for a particular milestone, such as buying your first home, you may want to consider investing in bonds. Bonds help you to lock away a certain amount of money for a specific purpose, while collecting income at regular intervals until you receive the principal at maturity. Think of it this way: instead of investing entirely in equities to maximize your return potential, you can instead aim to reduce risk by allocating a percentage of your portfolio to bonds that mature around the time you expect to purchase your first home. This helps you estimate how much money you will have when it comes time to make that future purchase. There are even term maturity ETFs like iBonds® in the market that have a specific end date like a bond. The word used in finance for this application is immunization. Essentially you are immunizing yourself against a future expenditure by putting that money aside today in a bond or term maturity ETF.
Bonds and 529 Plans