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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.

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