What role do bonds play in a diversified portfolio?

They should play four key roles in a diversified portfolio. Some bonds provide a counterbalance to your stock holdings by holding steady when stock prices plummet. Others act as safety nets, preserving money you need to tap soon. Some debt still generates decent income, despite low rates.

What is a diversified portfolio?

A diversified portfolio often includes three primary asset classes: Investors will determine how much they should dedicate to each asset class based on things like their investment time horizon, investment goal or goals, and risk tolerance.

Should you invest in a diversified portfolio?

You want to own assets with uncorrelated performance, so everything in your portfolio isn't going up or down at the same time. Most well-diversified portfolios are a mix of stocks, bonds, and cash. And you can achieve proper diversification with just 3–5 investments. Plus, that's how several billionaire investors recommend you invest.