For advisors, it’s not easy telling investors to use bonds when the stock market goes haywire if the debt market is also feeling the pangs of inflation fears. However, it makes for a teachable moment to re-educate investors on the importance of bonds in a portfolio.

Bonds can still serve as a safe haven asset in the long term, giving investors an opportunity to buy the current dip. Inverting yield curves as of late could be signaling a recession, further supporting the case to use bonds to minimize any stock market shock.

“Bond prices are in free fall and have been for about five months,” a U.S. News article says. “That means that financial advisors who use bonds and bond portfolios in their practices have to do something they have likely never had to do: explain to panicked clients why the part of their portfolio designed to offset the risk of their equity investments is failing them.”

“That’s why this is the time for advisors to use this as a teachable moment,” the article adds. “This bond crisis can be an impetus for advisors to change client mindsets about the tools they use to reach objectives instead of a predicament that only serves to compound their stock market woes.”

Getting Broad Bond Exposure

Not sure where to start in the current bond market? Prospective bond investors can go for a broad approach using exchange traded funds (ETFs) that run the gamut in the debt market, such as the Vanguard Total Bond Market Index Fund ETF Shares (BND).

BND seeks the performance of Bloomberg U.S. Aggregate Float Adjusted Index, which represents a wide spectrum of public, investment-grade, taxable, fixed income securities in the United States, including government, corporate, and international dollar-denominated bonds, as well as mortgage-backed and asset-backed securities, all with maturities of more than one year.

With the stock market experiencing heavy volatility these days, bond investors can use BND as a traditional hedging component when the equities market goes awry. Short-term traders can also use the ETF given its dynamic ability to be bought and sold quickly in the open market.

For more news, information, and strategy, visit the Fixed Income Channel.