Building up · 4 min read

Why investors hold more than one asset class

Shares and bonds are paid in different ways. A shareholder gets whatever is left after everyone else is paid, which is why shares can grow enormously and also fall hard. A bondholder is near the front of the queue with a fixed schedule, which caps both the downside and the upside.

Historically, bonds have moved around far less than shares, and in several stock-market falls government bonds held up while shares dropped. That is why many portfolios mix them. It is not a rule: 2022 was a year when both fell together.

Spreading money across asset classes — US shares, international shares, bonds, and cash-like short Treasuries — is about not needing any one of them to behave. It usually lowers how bumpy the ride is, and it can lower returns too.

Bond funds are not savings accounts. They can lose money, and they have. Steadier than shares is not the same thing as safe.

Scope shows classifications and explanations so you can see what an asset actually is. What proportion of anything belongs in your own portfolio depends on your circumstances, and that is not something Scope can tell you.

Remember

Different asset classes get into trouble at different times — that is the whole point.

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