Your assignment is to review the history of both short-term and long-term. How have bonds performed overall? What do bonds add to a portfolio? What disadvantages do bonds have? How can you minimize the disadvantages of bonds, while at the same time enjoying the advantages bonds offer?  

What are the major benchmarks or indexes that correspond with bonds? (See Learning Tool 15: Possible Benchmarks for Investment Plans) It is likely that you will include bonds in your diversified portfolio, so it is important that you select the major benchmarks you will follow to help you understand how bonds perform.  

Generally investors consider bonds less risky than stocks. What do they mean by that? To get an idea of one measure of risk, i.e., volatility, we have some tools to help you. To see graphically the volatility of bonds versus other asset classes, see Learning Tool 23: Return Simulation Worksheet. Go to the Asset Class Data tab and use the light blue drop-down boxes to select your asset classes (or you can just use the asset classes listed). Use the dark-blue drop-down boxes to select your time period. Then go to the “Charts” tab. Push the “F9” button to see the impact of standard deviation. What this worksheet does is to build random portfolios with the expected return and standard deviation of the period and asset class chosen. It then assumes that each asset class builds ten different portfolios and those portfolios are run for twenty years. The differences between the ten different portfolios are show in the same colored lines. The more the lines move together, i.e., the more each of the random portfolios move together, the less risky or less volatile the asset class. The more the same colored lines diverge, the more risk or more volatile the asset class.