When it comes to investing, stocks and shares get much more column inches than corporate bonds. Rightly so in my opinion, since over longer time periods stocks have outperformed corporate bonds.
As we’ll see below, there are good reasons to expect that outperformance to continue. Yet almost every book on asset allocation will tell you to diversify your portfolio into corporate bonds.
To decide if that’s right for you, it’s important you understand the following about stocks vs corporate bonds.
Vertical diversification is when your investment portfolio is spread across different types of assets.
Cash, government bonds, corporate bonds, property and shares can each be expected to behave slightly differently and so produce different returns, as circumstances change.
For instance, government bonds may soar when stock markets crash, because frightened investors sell their shares to seek the security of government debt.
I spent a few hours this morning reading Warren Buffett’s new 2008 letter to shareholders.
Maybe I should be worried the direction my life is taking, but Buffett’s annual letter has become a highlight of the year for me. It’s hard to write about investing in an engaging way (as Monevator subscribers will doubtless confirm) and yet Buffett’s letter is always a corker.
Indeed, I was disappointed to discover in Buffett’s biography The Snowball that the letter is co-written by Fortune journalist and long-time Buffett follower Carol Loomis. But I was also pretty relieved. It didn’t seem fair that Buffett, like his mentor Benjamin Graham, could write as well as invest better than me!
For those with more exciting lives or less time, I’ve snipped the essential highlights of Buffett’s letter below.
