Should you buy bonds in 2023?
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Is the time right for buying bonds?
After 12 months of a bear market, it’s easy (and common) to get caught up in the moment. We’ve had a year full of down asset classes and it’s often challenging to remember the key to successful investing. The key, of course, is to stick to your long-term goals and stay the course. To do that you’ll need to shift your mentality back to a time when you were successfully investing for many years.
What asset classes are the riskiest?
That answer isn’t exactly straight-forward because asset classes are never inherently safe or risky. The primary attribute to help you determine where your investments should go lies in the valuation. So, in the question of whether you buy bonds in 2023, let’s first take a step back.
What is a bond? A bond is really someone else’s debt. The bond issuer essentially is willing to pay the buyer interest during the timeframe (duration) that they agree to hold the bond. The bond duration dictates how long the issuer will make payments. Once it reaches maturity the bond issuer will give your money back. Historically, the longer the bond duration, the higher rate of return the investor will demand. This is because the buyer increases their risk as the duration lengthens.
Whether you are evaluating a government or corporate bond, there are two key things that issuers will look at before selling the bond: \
- Credit worthiness
- Effects of interest rates
If you are thinking about jumping into the bond market, a popular one is the Vanguard Total Bond Market ETF (BND). For reference, the bond has over 17,000 holdings where the average duration is 6.5 years and the average yield to maturity is 4.51%
For more commentary on why you should or shouldn’t consider buying bonds in 2023, listen to the full podcast.
Please note: This content is not a direct recommendation for investment. Investing involves risk including the potential loss of principal. Not all investments are suitable for all people. Crosby Advisory Group, LLC is a registered investment advisor in Ohio, Florida, and Texas.