Q&A With Gordon Pape: I’m Retired – Do I Need to Invest in Bonds?

In this Q&A, financial expert Gordon Pape explains to a reader the importance of investing in bonds in retirement.

Q – My wife and I are both retired and lucky enough to have defined pensions with an annual cost of living index as an additional benefit. I therefore see this as reliable income and do not invest in bonds. Am I wrong to think in this way? – Joseph S.

A – I suggest you’re missing a key point. The bonds in a portfolio are not just for income. In fact, high-yield stocks offer better cash flow. Bonds provide portfolio diversification and reduce volatility. In normal times – 2022 was an exception – bonds provide a buffer if the stock market falters. 

The volatility meter on the Steadyhand website illustrates the effect of owning some bonds. In 2018, a 100 per cent equities portfolio would have lost 4.7 per cent. A traditional mix of 60 per cent equities, 40 per cent bonds would have reduced that loss to 2.3 per cent. In 2011, a loss of 5.9 per cent with an all-equity portfolio would have become a small gain of 0.1 per cent with a 60-40 balance. The most dramatic impact would have been 2008, where an all-equity loss of 29.4 per cent would have been reduced to 15.2 per cent. 

The meter also tells us that over the long term, an all-equity portfolio generates superior results. Each investor must decide if they can handle the increased volatility. – G.P. 

Do you have a money question you’d like to ask Gordon? Send it along and then check out our Q&A section regularly to see if it was chosen for a response. Send questions to [email protected] and write Zoomer Question on the subject line. Sorry, we cannot send personal answers. 

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