What Do Savings Bonds Add to a Portfolio?

Investing in savings bonds may not be exciting, but it can be very practical. Many people neglect putting savings bonds in their portfolios because they are attracted to investments that have higher potential returns. If you are trying to build a portfolio, you should give some strong consideration to adding savings bonds to it. Here are a few things that savings bonds can add to your portfolio.

Safety

One of the biggest advantages of putting savings bonds in your portfolio is that you will get additional safety. Savings bonds are perhaps the safest type of investment that is currently available. You are essentially lending money to the United States government, which means that as long as the government is in place, your investment is safe. They will not default on the debt, which means that you will always be earning interest.

With other investments, there are very few guarantees out there. While something might be considered a guaranteed investment, the guarantee is only as good as the company or entity that is issuing it. Even companies that previously seemed invincible have filed for bankruptcy at some point. This means that if you are an investor in stock or company bonds, there is a chance that you could lose your entire investment. When you are building a portfolio, you want to have some level of certainty even if you are taking some risks otherwise.

Steady Returns

Savings bonds can also provide you with steady returns. Savings bonds always pay a certain amount of interest regardless of how poorly the economy is doing. By contrast, when you invest in stocks, you will not be entitled to a dividend payment when the company is performing poorly. Things have to be going well in most cases for you to get a dividend payment. Being able to get some type of payment at all times can be very beneficial to a portfolio.

Diversification

Many people get caught up in a specific type of investment and end up putting all their money into it. For example, many people like to invest mostly in stocks. While stocks provide you with some great opportunities, you should not put your entire portfolio into them. You need to have some other investments like mutual funds or savings bonds. This way, even if the stock market performs poorly, your bonds will still be there to pick up the portfolio.

How Much of the Portfolio?

If you are considering putting savings bonds into your portfolio, you may be wondering how much of your portfolio should be made up of this investment. There is not a specific rule that says how much you should have. However, many experts recommend that you should keep less than 10 percent of your portfolio in savings bonds. It might be even better to have less than 5 percent of your portfolio in these bonds. The majority of your portfolio should be made up of equities and equity mutual funds with some bonds in there for safety.

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