Although current interest rates are at all-time lows, eventually they could rebound.
Because the value of existing bonds tends to decrease when interest rates increase, investment portfolios overweighted to fixed-income assets could see significant losses should rates rise.
Consider investing in equities
The chart below shows how rising rates on the 10-year Treasury bond would have affected different hypothetical portfolio allocations during the past 20 years, when rates increased seven times. In those years when interest rates rose, the 100% bond portfolio returned little more than 2% on average, while the pure stock portfolio returned an average of 17%.
Adding even a small portion of stocks to a bond portfolio can increase returns significantly.
Sources: Bloomberg, SPAR, FactSet Research Systems Inc. Hypotheticals assume quarterly rebalancing.