The following is my answer to a Quora question: “I still need growth on my investments for retirement. Should I avoid bonds?”
That really depends. As you age, and seek growth, you may give greater weightage to equity instead of debt instruments in your portfolio. This should have the involvement of your financial planner to decide on your weightage. However, you should also be aware that debt instruments such as bonds mitigate against volatility since their return is stable. Whilst equity gives greater potential returns, they are also more volatile, and should the market drop, the value of your portfolio will be affected.
We have bonds in our portfolio, particularly in anticipation of market turbulence, to mitigate against this drop in portfolio value when stocks tank. It saves you a heart attack. A person further away from retirement has time for the portfolio to claw back value. A person retiring a year later does not have that luxury.
Considering a projection of how the market will perform within that period of time to your retirement, you may reduce your bond holdings and increase weightage to equity, but never eliminate bonds from your portfolio entirely. They have their place in every balanced investment portfolio.
Terence Kenneth John Nunis
[Shared with permission from: https://terencenunisconsulting.blogspot.com/2020/06/quora-answer-if-i-still-need-growth-on.html?m=1 ]
On a similar note, some consumers rely on retirement saving plans from insurance companies for their retirement funding needs.
While retirement plans offer some guarantee and stability, they do not offer much growth.
Striking a balance between stability and growth is key, and best with consulting a financial consultant/planner.