Since preserving purchasing power is often more important for retirees than actively increasing their portfolios, bonds often play an important role in many retirement strategies. Stocks, on the other hand, may involve more risks and may be less attractive to retirees. Bonds are less likely to lose money than stocks. Therefore, buying some bonds and stocks can reduce your portfolio's losses during stock market crashes.
What do we know about stocks and bonds as financial tools? Bonds are more stable in the short term, but tend to underperform stocks in the long term. The opposite is the case with stocks, which can be volatile (very volatile during periods of economic uncertainty), but which have generated more wealth when held for five years, a decade, or even longer. This is especially true if you regularly contribute new money and make investments. It may be surprising that the long-term extremes of stocks and bonds are quite close, but both have recorded 10-year periods of weakness and annual losses balanced with periods of double-digit gains.
However, at the end of the day, stocks have produced higher average returns. For this reason, stocks are often identified as a superior investment vehicle for your retirement portfolio. However, retirees are better off buying investment-grade bonds issued by entities with a high credit rating, he said. For example, Standard %26 Poor's investment grade ratings include AAA, AA, A and BBB.