In the five best years since 1926, bond returns ranged from 15% to nearly 30% - far above average equity return levels. However, the worst annual decline for bonds since 1926 was only about 5%.
Bonds have rarely lost money over a three-year or longer time period. Since 1926, less than 1% of the three-year holding periods resulted in a negative return for bonds. An investor with a three-year time horizon would have had greater than a 99% chance of earning positive returns on bonds by investing at any point in the past 79 years.
A key concept of portfolio diversification is the idea of asset correlation. If asset classes react differently to market factors and move in different cycles, they typicaly have a low correlation.
Over the past 25 years, bonds have had low correlations with almost all major asset classes, indicating that adding bonds to a portfolio has the potential to both diversify equity exposure and significantly lower portfolio risk.
Bonds have often provided positive returns when the stock market has declined. Since 1926, there have been 23 calendar years when stocks declined, however investment grade bonds generated positive returns in all but two of those 12-month periods.
As one of the Nation's leading underwriters of fixed income in our focus sectors we have resources available to help you achieve downside protection for your fixed income portfolio.