Greetings MMM community,
I come seeking wisdom regarding place of bonds in today's asset allocation. I set up a Vanguard account last September and invested in what I thought was a pretty conservative 50/50 mix of US stock and bonds (The total funds, VBTLX & VTSAX). The stock fund has done quite well, it's up about 15%. The bond fund however, did much worse, increasing in value only about .01% in the same time, less than the interest rate on my savings account.
At first I found that a bit disappointing; but you diversify to reduce risk, right? Then, more recently, I started reading about the interest rate risk of bond funds. That made me wonder, why am I putting this money at risk for such a low return rate?
I'd like to use a nice simple 3 portfolio strategy, but I'm concerned that the return of bond funds isn't worth the risk right now when looked at in isolation. I'm also concerned that the high price and low yields of bonds mean that they aren't as good of a hedge for stocks in today's conditions as they were historically.
Are these valid concerns? If so, is there another investment vehicle that I can use to replace bonds?
Or should I just shrink the bond allocation? Would something like 10% Bonds, 60% US stocks, 30% International Stocks work?