{"id":10117,"date":"2022-01-20T16:35:39","date_gmt":"2022-01-20T16:35:39","guid":{"rendered":"https:\/\/zackspcg.com\/blog\/?p=10117"},"modified":"2022-02-26T13:05:36","modified_gmt":"2022-02-26T13:05:36","slug":"are-bonds-worth-holding-in-2022","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/are-bonds-worth-holding-in-2022\/","title":{"rendered":"Are Bonds Worth Holding in 2022?"},"content":{"rendered":"\n

Tracy A. from Cincinnati, OH asks: <\/em>Good morning,\nMitch, I noticed that all of the bond holdings in my portfolio performed pretty\npoorly last year. And I\u2019ve read that if interest rates go up, bonds go down.\nAre they worth holding on to for 2022?<\/p>\n\n\n\n

Mitch\u2019s Response:<\/strong><\/p>\n\n\n\n

Thanks for writing. I think you are generally right that\ninterest rates are likely to tick higher in 2022, which could put some downward\npressure on bond prices. Minutes from the Fed\u2019s\nDecember 14-15 meeting, published on January 5, 2022, make it clear the Fed is\nmore urgently addressing price pressures: \u201cparticipants\ngenerally noted that…it<\/em> may\nbecome warranted to increase the federal funds rate sooner or at a faster pace\nthan participants had earlier<\/em> anticipated<\/em>.\u201d<\/p>\n\n\n\n

We\u2019ve been\nwatching Treasury yields moving higher in the past few weeks, as the\nmarketplace anticipates tighter central bank policy. Higher yields have led to\nsuboptimal returns in areas of the bond market \u2013 in 2021, U.S. Treasuries fell\n-4% and investment-grade bonds fell -1%.<\/p>\n\n\n\n

8 Retirement Mistakes to Avoid<\/a><\/strong><\/p>\n\n\n\n

How will changes and unknowns, such as interest\nrates, affect your investment portfolio?<\/p>\n\n\n\n

Especially for those who are planning for retirement \u2013 we recommend that you find a strategy that better protects your investments and helps to avoid common mistakes. To learn how to avoid common mistakes that many investors make, we recommend downloading our guide,\u00a0\u201c8 Retirement Mistakes You Need to Avoid.\u201d2<\/sup><\/em>

If you have $500,000 or more to invest, learn more by clicking on the link below.<\/p>\n\n\n\n

Download Our Free Guide<\/a><\/strong><\/p>\n\n\n\n

In my view, it depends on what purpose\nyour bond holdings are serving in your portfolio. If the bonds are there as a\nmeans to generate passive income, then Treasuries may not be the best option.\nThere are other types of bonds, like municipals and certain corporate bonds,\nthat could generate better yield in a portfolio. For those with more growth-oriented\ngoals, dividend-paying stocks and preferred stocks could also be worth\nexploring. <\/p>\n\n\n\n

If your bond holdings are in your\nportfolio as a diversification strategy, in an effort to reduce risk and create\na \u2018smoother\u2019 ride over time, then I may not be as quick to recommend ditching\nbonds in 2022. We cannot expect bonds to appreciate at the same time as stocks,\nsince the entire point is that they are generally negatively correlated. When\none zigs, the other zags, which is what creates that volatility cushion in\ninvestment portfolios. There was a period in early 2020 when there was a\npositive stock-bond correlation, but that appears to have been a temporary\nphenomenon. <\/p>\n\n\n\n

Finally, while there is a likelihood\nthat the Federal Reserve will be raising interest rates in 2022, there is\nalways the possibility that some other unexpected or unanticipated crisis\ncauses them to change course. In other words, rising interest rates in 2022 are\nnot assured \u2013 in fact, since that\u2019s the outcome everyone is expecting, I would\nnot be surprised if something different happened. <\/p>\n\n\n\n

The bottom line, in my view,\nis that some bond exposure can be good for an investor who wants\ndiversification and a modest income. Those bonds do not necessarily have to be\nU.S. Treasuries, however. In my view, there are better areas of the bond market\nto look at right now, such as in municipals and quality corporate bonds. So,\nare you prepared for market changes that could come as a result of rising\ninterest rates? Especially for those nearing retirement, we want to be sure\nyou\u2019re on the right track! There are common mistakes that we have seen\ninvestors make with their portfolios that can be avoided. To give you more insight\ninto how to avoid these mistakes, we recommend reading our guide, \u201c8\nRetirement Mistakes to Avoid.<\/em>\u201d This guide dives deeper into the following\nmistakes:<\/p>\n\n\n\n