If you’re worried about your bond portfolio, you’re missing the point

Bond markets generally offer more stability than stocks; investors should prioritize capital preservation over high returns

29 de septiembre de 2026
07:11
1 minuto de lectura'

LA NACION

If you’re worried about your bond portfolio, you’re missing the pointRichard Drew - AP

A friend who’s close to retirement texted that she was concerned about the bond market. She’d been building out that fixed-income allocation over the past several years at the urging of her adviser.

Her message made me wonder if some people might have misguided ideas about bonds .

Volatility is much lower than for stocks

For one thing, notwithstanding the recent headlines , bonds’ volatility is almost always going to be mild alongside the fluctuations that stocks experience. For example, on Sept. 1, 2026, a day when bonds grabbed the top headline on The Wall Street Journal’s website, total bond market index funds were down about half a percentage point. Returns for the year to date were just barely in the red. As the saying goes, “A bad year in the bond market is like a bad day in the stock market.”

Of course, the 2022 bond rout is fresh in everyone’s minds: Amid the Federal Reserve’s seven interest rate increases that year, the typical intermediate-term bond fund shed about 13%, and long-term Treasury bonds dropped nearly 30%. But those were the worst bond market losses in history, exacerbated by the fact that starting yields were so low at the time of the sell-off. When bond yields go up, hurting prices of already-existing bonds with lower yields attached to them, investors still receive whatever interest the bond pays; those interest payments help offset price declines. But with 10-year Treasury yields of about 1.5% in early 2022, yields provided limited cover for the interest rate-related losses in bond prices. In 2026, with 10-year Treasury yields at roughly 4.8%, bond investors have more protection in the form of higher yields.

The goal is return of capital, not return on capital

Another point that can get lost is why you hold bonds in the first place. Stocks are your growth engine, but bonds and cash are the sleep-at-night portion of your portfolio, designed to hold their value or lose just a bit when stocks are down. So, if the potential for losses in your bond portfolio is stressing you out, that can be a sound reason to change it up so that it doesn’t. You might give up some return potential in the process, but that’s OK. Your goal for your bond portfolio is “return of capital, not return on capital,” as the saying goes. Return on capital is why you hold stocks.

To help ensure your bond holdings land in the black for a specific spending need, use individual bonds, especially Treasury bonds and Treasury Inflation-Protected Securities, and hold them to maturity. This allows you to lock in a specific yield, whereas bond mutual funds’ yields will ebb and flow based on prevailing market yields. A laddered portfolio of Treasury Inflation-Protected Securities is a popular strategy to address retiree spending needs.

Alternatively, you can use mutual funds or exchange-traded funds. That approach doesn’t provide the same type of principal protection as buying and holding individual bonds to maturity, but it’s less rigid and can make sense for people with less precise spending goals.

If you go with bond funds, the best way to ensure their “sleep-at-night” functionality is to be willing to give up some return potential in exchange for more stability. For money you’ll need within the next few years, stick with cash instruments like money market funds or high-yield savings accounts. For spending horizons of three to 10 years, short- and intermediate-term high-quality bond funds are a solid option. They have some potential for losses, but if you match the bond fund’s duration to your anticipated holding period, your bond fund is likely to be in the black when you need the money.

This is not the spot to be a tactician

Some financial advisers and individual investors try to make tactical moves with bonds: shifting into shorter-term bonds or even cash when it appears higher rates are in the offing, or back into longer-duration bonds when they think yields are at a high-water mark.

My advice: Get out of the timing business. Most professional bond-fund managers don’t make active bets regarding their portfolios’ interest rate sensitivity, so it’s hard to see why individual investors would be able to gain an advantage.

Morningstar’s “Mind the Gap” research provides a stark reminder that bond investors’ ill-conceived timing decisions can take a bite out of returns.

For the 10-year period through December 2025, for example, the typical taxable bond fund earned 3.0%, but the typical investor in such a fund earned just 2.1%. Focusing on your individual situation and not taking more risk than you need to are key ways to avoid unforced errors with your bond portfolio.

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This article was provided to The Associated Press by Morningstar . For more personal finance content, go to https://www.morningstar.com/personal-finance .

Christine Benz is director of personal finance and retirement planning for Morningstar and co-host of The Long View podcast . Subscribe to her free newsletter, Improving Your Finances .