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Rekenthaler Report

Long Bonds and Gold as Portfolio Diversifiers

Should equity investors consider holding less of the former and more of the latter?

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In Dissent
Friday’s column stated that, at current prices, long Treasury bonds are bought to be sold. Their yields are too meager to justify a 30-year investment. Instead, people own long bonds because they must (as with foreign central banks), as a tactical tool (as with professional managers extending their portfolio’s duration), or with the implicit idea of trading them later.

A reader disagreed. Gabriel Adams wrote, “Long-term Treasuries can serve as an excellent diversifier in an equity-heavy portfolio. Absolute and risk-adjusted returns are improved by adding a long-term Treasury allocation. The results are compelling.” Viewed in isolation, long bonds aren’t pretty. However, they look decidedly more attractive when complementing an existing stock position.

John Rekenthaler does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.