Bloomberg Wealth: “You Ask, We Answer”
Bloomberg Wealth, Feb. 17, 2022 — Marguerita Cheng, CFP® Pro, is featured in today’s “You Ask, We Answer” column in the Bloomberg Wealth newsletter.
Mike Ryan, 64, Washington, D.C. wrote in to ask: What is the outlook on bonds (U.S. and international) in a 60/40 portfolio? Will inflation cause bonds to rise or drop over time?
As far as 60/40 portfolios are concerned just as the allocation to equities includes growth and value consider incorporating fixed-income strategies that provide flexibility with duration positioning and credit selection. Duration measures a bond or bond portfolio’s sensitivity to changes in interest rates.
Generally speaking the higher the duration the more sensitive the bond or bond portfolio is to changes in interest rates. The longer the maturity the more sensitive the bond is to changes in interest rates. The longer the maturity the more significant the interest-rate risk. A flexible and diversified fixed-income portfolio can help mitigate the impact of credit risk inflation risk currency risk and interest-rate risk. Remember that with stocks diversification is based on capitalization and value.
With bonds, diversification is based on credit quality and maturity. It’s important to maintain your strategic allocation and have a flexible tactical component.