Knowledge Tree

Relations (1)

related 2.32 — strongly supporting 3 facts

Bonds are a fundamental asset class used to construct and diversify a portfolio, as evidenced by their role in balancing risk and return [1], [2], [3], and [4].

Facts (3)

Sources

Chapter 8 – Risk and Return – Fundamentals of Finance pressbooks.pub Pressbooks 2 facts

claimDiversification is a strategy used to reduce investment risk by adding assets with low or negative correlation to an existing portfolio, such as adding bonds to a portfolio heavily invested in the technology sector.

claimA portfolio constructed with 60% stocks and 40% bonds can provide a smoother return over time compared to an all-stock portfolio because stocks and bonds are generally low to negatively correlated.

Topic 2: The Risk and Return Trade Off in Financial Decision Making oercollective.caul.edu.au CAUL 1 fact

claimStocks and bonds often exhibit an inverse relationship, where bonds may hold steady or rise when stocks decline, which helps balance a portfolio's performance.