By Dr. Anna McKeone, Guest Writer

Even for early- and mid-career investors, most respected asset allocations recommend holding bonds. This recommendation is based on the idea that bonds do not fluctuate as much as stocks, and it's to the point where people think of them as fairly “safe” money. In addition, they can (but not always) be negatively correlated to stocks—meaning that if stocks are down, then your bonds may be worth more during that same time period.

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But for some of us, bonds may not make sense. Here is why I have exactly 0% bonds in my portfolio.


Trading Education for Time in the Market

Like most of you in the medical field, by the time I started investing, I already had some gray hair. Because of the late start (and with little assets to lose), I was willing to go all-in on stocks to take more risk for better expected returns long term. Many of us have friends that had been contributing to their retirement accounts for a decade by the time we started making money as attendings. The power of compounding is the real deal, and in order to make up for that lost time, you either need to save more yearly toward retirement, take more risk for better expected returns, or both. I have chosen to hold 90% stocks and 10% real estate with no allocation to bonds, partly because of my late start and because I feel I need to be willing to take more risk to catch up from my decade of time in higher education when I wasn't in the market.


Long Investment Horizon

I am on my own bumpy road to financial independence, and my road is a long one. Having a long investment horizon allows me to invest in riskier assets because the expectation is that over the long run, they will get me to my destination faster by providing better returns. The riskiest time for retirees is the few years before and after retirement when the sequence of returns risk will be most impactful.

Most investors will want to significantly de-risk their portfolio with something like a bond tent in the years around retirement to mitigate that risk. As I am still quite a way from retirement, I get to celebrate when stocks are down because to me, they are just on sale (I also celebrate when stocks are up and I am making money on my money).

In the last few years with great returns, this has been pretty easy to stomach. And then came 2022 with negative returns. Although watching my retirement account numbers go down instead of up is painful, I know that unless I pull that money out, the loss is just theoretical. Plus, I would still rather lose 10% on my money this year but have had that same money making 25% yearly over the last few years. If I had not had it in stocks during that time, there would have been much less total in the account to date. In addition, I will not need that money for 20 years and feel confident that by the time I need it, that money will have come back and made more.


Fungibility of Debt

But the biggest reason that bonds are a no-go for me right now is that money is fungible. If money is fungible and debt is money, then that means that debt is fungible, too. I currently still have low-interest debt, including my student loans and mortgage, that I am working to pay off. Initially, when I was setting up my written investment statement, I had planned to have a bond allocation. However, as I analyzed my financial situation more closely, investing for a 3% not guaranteed return while I had 3% debt did not make sense. The idea of investing in a bond with money that is essentially borrowed from my house or student loans felt wrong.

I realized my low-interest debt is essentially functioning as a negative bond. By paying off my low-interest debt instead of investing in bonds, I am guaranteeing that return. Some would say, “Leverage all the low-interest debt you can!” And those people I would direct to Dr. Jim Dahle’s excellent lecture on debt at the Physician Wellness and Financial Literacy Conference (you can find that lecture in the Continuing Financial Education 2022 course). Taking the percentage of your asset allocation that would normally be assigned to bonds and using that money to pay off your low-interest debt will have the effect of increasing your net worth while making steps toward a debt-free life.

bonds in portfolio


Have a Cushion

To do this responsibly, I need easy access to money if something happens to me and the market is down. This includes having an adequate emergency fund as well as access to credit cards and a home equity line of credit if things really go south. My plan is that once my low-interest debt is paid off, I will use that money, at my target asset allocation, toward bonds as typically recommended.


When Will Bonds Be Right for Me?

I see adding bonds when I have my debt paid off. I will even pay off my house first, as I am debt averse and love the idea of owing nothing to anyone. Once I no longer have debt payments, I will add an allocation to bonds, probably somewhere around 25%. Then, as I am approaching retirement, I plan to create a bond tent for the 4-5 years before and after retirement when the sequence of returns risk is highest. A bond tent effectively increases allocation to bonds in the years leading up to retirement, and I will likely target up to 75% at that time. In the years following retirement, I plan to taper back down to around 40% bonds. If all goes as planned and my retirement fund remains adequate, I will again start increasing asset allocation to stocks. The more legacy money I have can then be directed toward more giving.


As they say, personal finance is personal. No matter what you choose to do with your investments and debt, make sure you understand it, that it is part of your written investment statement, and that it allows you to sleep well at night.

What percentage of your portfolio is in bonds? Do you think it makes sense to have absolutely zero bonds in your possession? Has the cratering market of 2022 changed your opinion? Comment below!

[Editor's Note: Dr. Anna McKeone is a practicing emergency physician and a lover of the outdoors and personal finance. You can find more of her work at The Bumpy Road to FI. This article was submitted and approved according to our Guest Post Policy. We have no financial relationship.]