When the stock market becomes volatile, investors often think about selling their stocks in favor of somewhat safer 澳洲幸运5官方开奖结果体彩网:corporate bonds.

We are often൩ reminded that bonds are the safer investment and that they tend to move opposite of stocks and have a negative correlation.

Before making a drastic decision to sell, let's take a closer look at correlation and other important factors that should go into your decision.

Stock and Bond Correlation

Investors use bonds⛦ as ⛎a diversifier among stock investments, and to generate income.

澳洲幸运5官方开奖结果体彩网:Diversification reduces risk and maximizes returns because you 🐲have invested in assets that react differently to market conditions. Traditionally, bonds have been presented as an investment that moves in the opposite direction of sto🍒cks. However, this does not paint the full picture and needs to be looked at in context.

According to a Morningstar, Inc. research report, government bonds have a negative correlation to stocks but corporate bonds do not.

This means that as stocks lose value, corporate bonds most likely will also lose value. The bonds will typically not go down as much as stocks, which have little downside protection, butཧ the overall portfolio will still decrease. Because of this correlation, you may not be better off running to bonds.

To make the finalꦇꦐ decision you should look at your goals and timeline for your investments.

Goals and Timeline

Investors with a longer time horizon will be better suited to stick with the right 澳洲幸运5官方开奖结果体彩网:asset allocation than to try and time the market.

For example, iꩵt is appropriate for an investor who is 25 (or even 10) years away from retiring, to take the extra risk and buy stocks at lower prices. The long-term growth of stocks is a better place for them to have their money.

The closer you ar♓e to retirement the trickier this question bec⛎omes.

If you need your investments to produce income, then it is important to decide if corporate bonds or 澳洲幸运5官方开奖结果体彩网:dividend stocks 🦂are a better place for you to be.🍌 In a low interest-rate environment, investors tend to favor stocks instead of bonds.

However, low-interest rates cannot be sustained forever. When rates eventually rise, the 澳洲幸运5官方开奖结果体彩网:face value of y✱our bonds will decline.

With both areas subject to capital loss you must now look to yield and your ability to combat the 澳洲幸运5官方开奖结果体彩网:capital loss.

When you invest in stocks you do not actually lose the capital until you sell. If you hav🐼e enough income from the dividends and other sources such as a pension, and you do not need to sell, you will regain your capital if/when the market comes back.

With bonds, this is trickier. If you own a single bond outright and hold it to maturity you will protect your capital as you get the face value back at maturity. If you are using a 澳洲幸运5官方开奖结果体彩网:mutual fund or ETF for your bond investing 𝄹you may or may not lose capital, it is up to the decisions the fund manager makes. It is out of your control.

A good compromise for equity investors is to keep the focus on 澳洲幸运5官方开奖结果体彩网:blue-chip dividend stocks such as United Parcel Service, Inc. (UPS), Generꩵal ൩Electric Co. (GE), and The Coca-Cola Co. (KO).

Then when the marke꧟t does go down, you have less to worry about than a high-flyℱing new growth stock.

The Bottom Line

Where you are invested should be influenced byও your goals and timeline.

The further you are from retirement, the less you need to worry about today's market, which makes it easier to stick to your asset allocation. The closer you are to retirement, the more important it is to understand what you need from your money and then pick the right place for your investments.