Anyone saving for retirement in a 401(k) or IRA can’t help but notice how much stock funds have been going up. In 2016, the S&P 500 index notched gains of nearly 12 percent, and so far this year, the broad stock market benchmark is up over 7 percent.
But the story for bond funds is mixed. The Barclays US Aggregate Bond Index, a good proxy for the bond market, posted smaller gains of 2.6 percent last year and about 1.6 percent so far this year. To be fair, it’s no surprise that over long periods of time bond funds will underperform stocks. But when stock markets are down, bond funds can hold value, so owning bond funds can reduce risk, diversify your portfolio and be a sound investment strategy.