Q1: Should buy bonds when the stock market is in a bull market (when prices are very high)?

One opinion is that bonds are not worth considering because their long-term returns are lower than stocks. Is this opinion correct?

I advise beginners to prioritize risk over returns before entering any investment decision.

Regarding bond assets, two things need to be clarified:

Firstly, each bond asset plays a different role in an investment portfolio.

The role of bonds in asset allocation is not to generate returns but to control risk;

especially when the portfolio becomes more diverse, priority should be given to protecting assets and stability.

Imagine $1,000 shrinking to $500; you might think it doesn't matter;

but if $10 million suddenly becomes $5 million, I think not many people would accept that.

Bonds are not meant to create returns,they are positioned to balance risk and can generate a little return, acting as a supplement when higher risks cannot be tolerated.

Secondly, risk and return.

Past returns do not equate to future returns, but past risk can significantly reflect future risk.

No one can predict market changes, nor can they know if now is the actual peak.

It's similar to buying insurance; it's about planning ahead, not thinking about what insurance to buy after an incident.

For example, during the 2008 financial crisis and facing market volatility, if the stock market plummeted and your assets suddenly decreased significantly, could you bear it?

Bonds (especially U.S. government bonds) have the power to reduce risk, and being prepared for asset allocation (buying insurance) at any time can minimize the impact of unexpected market fluctuations.

Q2: Should buy bonds for hedging when stock indices fall?

The focus of asset allocation is on preventing risks and preparing early.

Entering the bond market only when stocks plummet is similar to the situation before a typhoon hits, when product prices become very chaotic. Everyone anticipates bad weather, and in most cases, the prices of goods rise in advance.

If investors buy bonds at this time, not only do they fail to achieve the goal of asset protection, but they also risk paying a higher price.

Q3: Is it good to allocate stock-bond ratios based on age?

For example, during a physical examination, people of the same age may have different physical conditions. The doctor might further explain that factors such as diet, exercise, and genetics affect the test results.

The case of asset allocation is somewhat similar to health checks, as everyone's income, family expenses, total assets, personal risk tolerance, etc., all vary.

Defining asset allocation in terms of stock-bond ratios solely based on age might be too broad.

Therefore, there is no best allocation, only the allocation that is most suitable for you.

Q4: I've invested in stock-based ETFs, which indicates that I am diversifying my investments. Why do still need to hold bonds?

We know that it's not wise to put all our eggs in one basket. ETFs essentially distribute eggs into different baskets, but each investment tool further subdivides into various categories.

Types of ETFs include Stock ETFs, Money Market ETFs, Sector ETFs, Futures-based ETFs, Bond ETFs, and International Stock ETFs.

ETFs of the same asset type (like Stock ETFs), although diversified into different baskets, are still stored in the same place. In a major stock market downturn, most stocks will be similarly affected.

U.S. Treasury bonds are the safest instrument in the market. As mentioned earlier, the stock market and bonds are mostly negatively correlated. Holding bonds during such times can reduce losses and diversify risks.

Q5: Do all bonds offer asset protection?

Although stocks and bonds generally have a negative correlation, not all bonds and stocks are negatively correlated.

Highly correlated asset classes are not suitable for inclusion in asset allocation. Since high-yield bonds and stocks tend to move similarly, high-yield bonds cannot effectively protect assets.