Do Bonds Have a Role to Play in Your Portfolio in 2024? (2024)

FAQs

Do Bonds Have a Role to Play in Your Portfolio in 2024? ›

Interest rates are likely in the process of plateauing in 2024. The two years prior set the stage for bonds to offer greater downside cushion and, as a result, a chance to improve return potential. Bonds look as attractive as we've seen in well over a decade, but the elevated yields might not last.

There are indications that interest rates may start to fall in the near future, with widespread anticipation for multiple interest rate cuts in 2024. Falling rates offer the potential for capital appreciation and increased diversification benefits for bond investors.

Ultimately, holding bonds in a portfolio can help with diversification. Often, portfolio solutions (investments made up of carefully selected and managed mutual funds and/or exchange-traded funds) will include a fixed income component depending on how much risk you're comfortable with or when you will need your money.

Berkshire Hathaway has a tiny bond allocation in its investment portfolio, which mostly supports its huge insurance business. This contrasts with most insurers, who keep the bulk of their assets in bonds. Berkshire CEO Buffett favors stocks and cash—mostly U.S. Treasury bills.

Answer: Now may be the perfect time to invest in bonds. Yields are at levels you could only dream of 15 years ago, so you'd be locking in substantial, regular income. And, of course, bonds act as a diversifier to your stock portfolio.

If bond yields rise, existing bonds lose value. The change in bond values only relates to a bond's price on the open market, meaning if the bond is sold before maturity, the seller will obtain a higher or lower price for the bond compared to its face value, depending on current interest rates.

We continue to forecast about 4% average 2024 GDP growth for emerging markets worldwide, led by growth of about 5% for emerging Asia. We anticipate growth of 2%–2.5% for emerging Europe and Latin America, though U.S. growth could have positive implications for Mexico and all of Latin America.

While it's not a satisfying answer, the real answer is that "it depends." The decision of whether to shift your 401(k) to a more conservative asset allocation will depend primarily on your longer-term goals, personal drivers of your risk/return profile and the asset allocation in your other accounts, if applicable.

The 90/10 rule in investing is a comment made by Warren Buffett regarding asset allocation. The rule stipulates investing 90% of one's investment capital toward low-cost stock-based index funds and the remainder 10% to short-term government bonds.

As you can see, each type of investment has its own potential rewards and risks. Stocks offer an opportunity for higher long-term returns compared with bonds but come with greater risk. Bonds are generally more stable than stocks but have provided lower long-term returns.

What percentage of bonds should I have in my 401k? ›

The 60/40 rule, for example, dictates having 60% of your portfolio in stocks and 40% dedicated to bonds. Or you may use the rule of 100 or 120 instead, which advocates subtracting your age from 100 or 120.

There are no set ages to get into or to get out of the stock market. While older clients may want to reduce their investing risk as they age, this doesn't necessarily mean they should be totally out of the stock market.

Muni bonds have typically been popular with wealthy investors, but investors in a variety of tax brackets may want to consider them. Muni bonds are high-quality investments that may be well positioned to weather potential recessions.

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.) Schwab's 10-year return expectations are well below each asset class' returns from 1970 through October 2023.

And, more importantly, are they the right choice for your needs? Traditional savings and money market accounts allow you to earn interest and access your money right when you need it. Bonds, on the other hand, grow slowly in value and are worth the most after 20 to 30 years.

You can get your cash for an EE or I savings bond any time after you have owned it for 1 year. However, the longer you hold the bond, the more it earns for you (for up to 30 years for an EE or I bond). Also, if you cash in the bond in less than 5 years, you lose the last 3 months of interest.

Investment returns over the last few years and into 2024 suggest this could be an interesting year for bond investors. After the record pace of interest rate increases, central banks could finally be in a position to offer monetary policy relief, which could lead to a decline in interest rates in 2024.

Emerging markets had a strong start to 2024, posting positive total returns despite significant headwinds from the move higher in US interest rates. Emerging market countries and corporates with lower ratings performed particularly well with spread compression occurring across regions and market segments.

Constructive outlook, despite loaded election calendar and geopolitical risks. Emerging markets' growth is expected to remain steady in 2024 at around 4%.