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Sooner or later, every investor will experience a stock market crash—when markets plummet quickly and unexpectedly. Let’s take a look at a few of the best investment choices you can add to your portfolio now to help you weather extreme market conditions.
It’s hard to find steadier investments than U.S. Treasury bonds, which are backed by the full faith and credit of the U.S. government. Investors padding their portfolios with low-risk investments that can provide a bit more yield than cash under a mattress have long turned to U.S. treasury bonds.
With terms of 20 and 30 years, Treasury bonds pay interest every six months until maturity, at which point the government pays you their face value. Rates constantly fluctuate, but recently treasury bonds have yielded in a range between 1.375% and 2.375%.
While Treasury bonds provide stability, there are times when they barely keep up with inflation—and now is one of those times. Other forms of government-backed debt, like I bonds or Treasury Inflation Protected Securities (TIPS) may be better choices during periods of low interest rates and high inflation.
You can buy Treasury bonds, I bonds and TIPS directly from the U.S. Treasury at their website, TreasuryDirect.gov.
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Corporate Bond Funds
If you’re comfortable with slightly more risk than government bonds, but still want the security of fixed income, corporate bonds may be just the ticket.
Corporate bonds work a lot like Treasury bonds, except instead of lending Uncle Sam money, you’re giving it to private companies. These private companies then turn around and use your investment to fund growth, though they have a slightly spottier, but still generally good, history of paying you back what you’re owed.
Read More: How Do Bond Ratings Work?
Most individual investors will have trouble accessing individual companies’ bonds (not that they should even necessarily want to), but everyone can easily buy shares of mutual funds and exchange-traded funds (ETFs) holding hundreds of corporate bonds in their normal brokerage accounts.
High-quality corporate bonds have historically provided steady, solid returns. For example, the SPDR Portfolio Corporate Bond ETF (SPBO), which tracks the Bloomberg U.S. Corporate Bond Index, has a three-year trailing return of about 8%, delivering positive returns even during the Covid-19 pandemic. Returns fall quite a bit if you stretch them out to five …….