The good news hidden in the bond market’s 2021 losses

The good news hidden in the bond market’s 2021 losses

It’s good news that bonds went down last year.

I doubt that’s how you reacted when reviewing the 2021 performance scoreboards, of course. The total U.S. domestic bond market lost 1.9% last year, as judged by the Vanguard Total Bond Market ETF BND, -0.27%. Long-term Treasurys lost even more, losing 5.0% (as judged by the Vanguard Long-Term Treasury ETF VGLT, -0.69% ). You might think it’s difficult to put lipstick on this pig.

The reason I think we should try: Bonds are a diversifier for your retirement portfolio—reducing the volatility-based risk otherwise associated with an all-stock portfolio. But being a diversifier means they should zag when stocks zig, and vice versa. And that’s exactly what they did last year.

Those who nevertheless were disappointed by bonds’ performance last year want to have their cake and eat it to. But that’s magical thinking: You can’t expect bonds…

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