Questions about bonds come up frequently in the Bogleheads forum, which is appropriate since they are, together with stocks, the most important part of your asset allocation. Due to the unique nature of bonds, these questions are often impossible to answer accurately without knowing considerably more information. The question may seem simple, but the answer must often take into account how the bonds work within a portfolio, tax considerations, and the timeline for the money. Therefore this page should serve as a guide when asking bond questions which will ensure you get as many answers as possible and the answers are as helpful and personalized to your situation as they can be.
Learning the basics
- Decide on a bond allocation and the role of bonds in your portfolio
- Be sure to understand the major risks of bonds.
- Try to understand the concept of duration.
- Appreciate that bond funds do not behave any differently than rolling ladders of individual bonds.
Questions to ask
- Asset allocation: What is your stock/bond split? What are your current stock and bond investments (categories such as % allocated to small cap value are fine)? What is your desired AA?
- Goals for your bonds: The general recommendation is to view bonds as part of your overall portfolio except for specific pieces that you have invested for shorter term. What are the goals for your bonds, and what percentage is needed when? For instance, if you are investing for retirement but 20% of your bonds you will need to pay for a child's college education in 15 years, that is helpful information.
- Tax-advantaged space: How much of it do you have? Do you currently have anything besides bonds in your tax-advantaged space? Have you placed assets efficiently?
- Risk tolerance: Are you comfortable with slight variations in the value of your bonds or must they lose not a single penny?