The following is my answer to a Quora
question: “Should
new investors, in their 20s, have bonds in their portfolio?”
It is a good practice to have bonds in
your portfolio. Debt instruments lower
the overall risk of your portfolio, and stabilise it in the event that equities
drop. Equities have the potential to
earn well, but they are more volatile. Debt
instruments, such as bonds, do not have as high a yield, but the value is
stable because the yields are stable – they are fixed payments over specific
periods of time.
Generally, for someone just building their
portfolio, they need a balanced spread of investments. I would recommend a 40% weightage to debt
instruments, and 60% to equity instruments. As they gain a measure of familiarity with the
market, they can adjust the weightage according to the anticipated market
conditions.
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