Are you wondering whether to invest in bonds to build wealth? Wealthier Americans often skip the traditional advice of aligning bond allocation with age. Instead of using formulas that increase bond holdings as you age, many opt for less conventional, more dynamic approaches to managing their portfolios.
Here’s something interesting from the data we’ve gathered from over a million users of a popular financial management tool. Among these users, about 200,000 have significant investable assets ranging from $100,000 to $2 million. We often refer to this group as the “mass affluent.” These individuals typically have regular jobs, save diligently, and invest wisely to provide for their families, afford education, enjoy vacations, and secure a comfortable retirement. Notably, their investment strategies usually involve minimal bond holdings.
Now, let’s talk about different asset allocation models that might interest you:
1. The traditional model suggests matching your age with your bond allocation percentage.
2. A more aggressive approach might blend lower bond allocations with higher equity positions.
3. Some prefer a balanced model with equal parts stocks and bonds.
4. There’s also a model suggesting very high equity allocations until later in life.
5. And there’s my model—a mix of aggressive early equity investing followed by gradually increasing bonds starting around age 35.
These models are built on the assumption that you’re not solely relying on retirement accounts or social security. They assume you have multiple income streams and are keen on managing your finances personally.
Our data shows that even affluent investors are generally cautious about heavy bond investments, mirroring the strategies suggested in my hybrid model. This cautious approach is visible across various age groups in our database, with bond allocations generally lower than what traditional wisdom might suggest.
For instance, younger investors under 35 typically allocate only about 9% to bonds. This allocation slightly increases with age, but even those approaching retirement often keep bond investments below a quarter of their portfolio.
This data suggests a trend: perhaps the mass affluent are more optimistic about the economy or less confident about long-term bond market gains. It seems that after significant bull runs in the stock market, many investors feel confident in their ability to manage investments without relying heavily on bonds.
However, if you’re considering bonds, remember they’re not just about preserving capital. They’re a way to manage risk and provide a buffer against market volatility. They might not be the centerpiece of an aggressive growth strategy, but they have a place in a balanced portfolio, providing steady, if unspectacular returns.
Before making any decisions, consider how bonds fit into your overall financial strategy and how they align with your risk tolerance and investment goals. Whether you choose to follow the lead of the mass affluent or forge your own path depends on your financial situation and life goals.
