The High Risk of Bonds

Maple Money podcast with Ed Rempel

I was recently interviewed by Tom Drake on The MapleMoney Show, the podcast that helps Canadians improve their personal finances to create lasting financial freedom.

Most investors see bonds as a safe place to put their money, but conventional wisdom may be deceiving. Investing in bonds can actually put your portfolio at risk.

To help us understand the risks of long-term bond investing, we discuss a couple of scenarios using the 4% rule. This tried and true concept of retirement planning says that when you retire, you should be able to draw 4% from your investments every year increasing by inflation, and have your savings last for the remainder of your life.

Ed has tested this rule with different asset allocations, and while it largely holds up for portfolios with equity holdings of 70% to 100%, the chances of success drop dramatically as bond exposure rises.

Episode Summary

  • How bond investments work
  • The case against bonds as a low risk investment
  • Between 1940 and 1980, bonds lost half of their purchasing power
  • If you can’t tolerate short term portfolio losses, you should consider bonds
  • How does the 4% rule work with bonds?
  • Over the long term, the stock market is easier to predict than the bond market
  • As a general rule, the less bonds you have the better off you’ll be

The High Risk of Bonds


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