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Do young investors need bonds? A reader asked a Morningstar expert in a Q&A article whether young investors who have no need for their money back for 40 years really needs to worry about bonds in their portfolios. Is diversification into fixed-income necessary, they asked, or can they instead simply diversify among equities? The expert agreed that an investor with several decades can overweight stocks and not worry too much about bonds. However, there was a caveat. A small allocation to bonds makes sense even for young investors, the expert said. Even for someone with four decades to go until retirement, it doesn't feel good to lose money, the expert cautioned. She reminded the reader that an investor's risk capacity (how much risk they can tolerate given their time horizon) is often different from their risk tolerance (their comfort level with short-term volatility.) "That's why a sliver of fixed-income can be helpful, as just a tiny allocation to bonds can help tamp equity volatility in a portfolio without giving up too much upside," Morningstar said. --Morningstar
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