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Subject:  Re: The Goal of Bond-Investing Date:  5/20/2010  11:32 PM
Author:  jackcrow Number:  30878 of 36218

Actually, my fixed allocation is to provide a little safety in a dangerous world. It's that simple. If I can make a little money, so much the better, but safety is the main reason I have a fixed allocation.

Individual bonds tend to be safer than individual stocks. A poorly purchased bond will do less damage then a poorly purchased stock. A prudently purchased bond will add less than a prudently purchased stock. Individual stocks tend to be more volatile than individual bonds.

I state the above because there is often this bad idea pitched that sounds an awful lot like "bonds are safe" or "holding some bonds makes my portfolio safer". Neither statement is true. A 60/40 balance of poorly purchased assets purchased at poor prices is a crappy portfolio destined to damage the wealth of the holder. A 80/20 or 20/80 portfolio of high quality assets purchased at good prices is a good portfolio and will increase the odds of a the holder increasing their wealth.

If safety is the priority then you need to buy "safe" assets at "safe" prices. Buying safe assets at risky prices decreases your safety. None of the above completely protects you from short term manic moments that can and will hit both stocks and bonds.

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