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How to invest

4 bond strategies that matter

Learn how investing in bonds can help offset inflation and complement your long-term portfolio.
2.5 minutes
March 21, 2023
How to invest
Understanding investment types
Asset mix
Market volatility

When investing for the future, it's important to create a plan that's built to last. However, sticking to that plan isn't always easy, especially when economic factors cause us to make impulsive decisions or question our long-term investing strategy.

I saw this come to life in a couple different ways during the COVID-19 pandemic. As the real estate market skyrocketed, some homeowners bypassed inspections and experienced buyer's remorse. And in the rising interest rate environment, some investors reconsidered their fixed income investments over concerns bonds couldn't keep up with inflation. When those rates rose, their prices declined in value.

No matter what's going on in the markets, it's important to stick with your long-term investment strategy. As an advisor, one of the ways I help my clients stay the course is by reminding them of the role long-term bonds play in a well-balanced, diversified portfolio. Here are 4 strategies that can help ease your inflation concerns and keep you aligned with your long-term goals. 

Understand how bonds fit into your strategy

Since bonds are just one piece of your investment strategy, it's important to make sure they're appropriately balanced against your stock allocation.

Generally, bond prices tend to move in the opposite direction of stock prices. When stock prices are down, bond prices are up, and vice versa. 2022 was an unusual year in that both stocks and bonds were down. Regardless, bonds still offered diversification and performed relatively better than stocks. Here's what that means for your portfolio. 

One of my jobs as an advisor is to look at my clients' portfolio gaps and fill them in with recommendations that help manage risk.

When stock prices are down, bonds can offer shock absorption

From my observation, when markets are unsteady, investors sometimes move from stocks to bonds. And when market confidence is high, they move back from bonds to stocks. This causes the known inverse relationship between stock and bond prices, but it's not a firm rule.

Diversification is important and can help absorb shock when the market is volatile. Bonds balance your portfolio's risk and make it easier to recover your losses. This remains true even now that bonds are generating higher income payments compared to a year ago and compared to stock dividends.

When bond prices are down, stocks can help you keep up with inflation

Some investors sell bonds and buy stocks when bond prices drop. But before you take any action on your portfolio losses, remember the importance of your target asset mix.

When the stock market is performing really well, your portfolio may end up overweighted in stocks, exposing you to more risk than you're comfortable with. When this happens, we recommend increasing your bond exposure to get you back to your target allocation.

Check out these portfolio allocation models to help you decide how much to invest in bonds and stocks.

Spread out your asset risk

One of my jobs as an advisor is to look at my clients' portfolio gaps and fill them in with recommendations that help manage risk. This is why I often encourage my clients to diversify within asset classes.

For example, what if you had a diversified stock portfolio but only individual bonds for fixed income assets? In this scenario, I'd recommend you supplement your portfolio with bond funds that are diversified among different qualities and maturities, hedge against inflation and currency risk, and factor in tax circumstances.

For investors who have little time or interest in picking out individual bonds, broad-based bond funds are a simple way to get broad exposure to the U.S. and international bond markets.

Check out our bond funds

Focus on what you can control

It's natural for economic factors to test your risk tolerance, but market volatility shouldn't drive major changes to your portfolio. When my clients express concern about these things, I encourage them to take a step back, look at the bigger picture, and consider why they're investing in the first place. 

You can't control the economy but you can control your asset allocation, stick to Vanguard's Principles for Investing Success, and create a well-balanced, diversified plan that's built to weather whatever market conditions come your way.

Investing dos and don'ts

When the markets get rough, I take the time to revisit my clients' goals and make sure their portfolios remain appropriately balanced for their age, time horizon, and risk tolerance.


Create clear goals and choose a well-balanced mix of assets that aligns with your risk/return profile.

Maintain a long-term, disciplined investing approach.

Keep your costs low by investing in funds with low expense ratios and rebalancing your portfolio in a tax-efficient way.


Focus on investment fads or individual stocks or bonds, especially ones that are trending. 

Follow market-timing advice or try to make quick money in a short amount of time.

Rebalance too frequently—you could end up with more capital gains taxes than you bargained for.    

89% of our low-cost bond funds performed better than their peer-group averages over the past 10 years.*

Ready for a custom plan that's built to last? Our advisors are here to help you.

Steer clear of the rearview mirror

When you're driving down the highway, it's important to keep your eyes on the road ahead.

The same idea applies to investing. Instead of reacting to market volatility, news, and trends, it's important to keep your long-term goals in sight and ensure your portfolio stays aligned with your target asset mix.

Too often, we hear market-timing success stories—maybe a friend or family member bought a hot stock and reaped the benefits. These stories can leave us feeling like we missed out on the next big investment trend. But we rarely hear about the investment misses. Maybe that same friend put all their money into a few stocks and lost a portion of their funds because they didn't have a well-balanced portfolio.

During 2022 when stock and bond values were down, you may have found it tempting to abandon diversification or rebalancing your portfolio because it "didn't work." However, straying from your asset mix in times like this can compromise your portfolio's long-term strategy.

To ensure my clients remain aligned with their target mix and risk/return profiles, I continually rebalance and add to their portfolios. This involves buying stocks or bonds while prices are down and reinvesting the dividends, which helps to reduce the average cost of the shares and recover losses. This strategy—also called dollar-cost averaging—demonstrates one of the most important concepts of Vanguard’s Principles for Investing Success: that increasing your savings rate can help you trump market performance. 

This is why it's so important to take advantage of rebalancing and reinvestment opportunities—so you don't miss out on subsequent equity returns or hinder your progress toward your goals.

Not sure if you need to rebalance your portfolio?

Looking for a framework to navigate current market volatility? Vanguard's Portfolio Watch tool can help you determine if you've drifted from your target mix. You can access it directly by selecting My accounts and then Portfolio Watch.

You can also include non-Vanguard funds to get a more holistic view of your accounts and determine whether you need to make any adjustments. To do this, select Add an outside investment at the bottom of your Accounts summary page.

Want an investment partner to coach you through tough investment decisions?

Working with Vanguard Personal Advisor® gives you anytime access to advisors who are fiduciaries—always acting in your best interests. We stress-test your portfolio against thousands of possible market scenarios and offer one-on-one support whenever you need to discuss life changes or just talk things through.

Your goals are our goals

We're by your side to help you feel confident about your future.

*For the 10-year period ended December 31, 2022, 80 of 90 Vanguard bond funds outperformed their Lipper peer-group averages. Results will vary for other time periods. Only mutual funds and ETFs (exchange-traded funds) with a minimum 10-year history were included in the comparison. Source: Lipper, a Thomson Reuters Company. The competitive performance data shown represent past performance, which is not a guarantee of future results. View fund performance

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Bond funds are subject to interest rate risk, which is the chance bond prices overall will decline because of rising interest rates, and credit risk, which is the chance a bond issuer will fail to pay interest and principal in a timely manner or that negative perceptions of the issuer's ability to make such payments will cause the price of that bond to decline.

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