Are bonds really a recession proof investment?
No, they are not recession proof.   Assume several companies, that issued bonds in the fund, go bankrupt.  Those bonds could be worthless, they could miss principle payments, or they could be restructured.  All would mean a decline in value. When the economy shrinks (which is what a recession is) how does the Fed respond?  By lowering interest rates.  This makes current bonds more valuable as presumably they were issued at a higher rate, thus the recession proof prejudice.  However, there is nothing to stop a company (in good financial shape) from issuing more bonds to pay the par value on high-interest bonds, thus refinancing their debt.  Sort of like how the bank feels when one refinances the mortgage for a lower rate.   The thing that troubles me the most is that rates have been low for a long time.  What happens if we have a recession now?  How does the Fed fix it?  I am not sure exactly what the fallout would be, but it could be significant. If you are troubled, you should look for sectors that would be hurt and helped by a Trump-induced recession.  Move money away from those that will be hurt.  Typically aggressive growth companies are hurt (during recessions), so you may want to move money away from them.  Typically established blue chip companies fare okay in a recession so you may want to move money toward them.  Move some money to cash, and perhaps some towards bonds.   All that being said, I'd keep some money in things like aggressive growth in case you are wrong. Bonds by themselves aren't recession proof.  No investment is, and when a major crash (c.f. 2008) occurs, all investments will be to some extent at risk. However, bonds add a level of diversification to your investment portfolio that can make it much more stable even during downturns. Bonds do not move identically to the stock market, and so many times investing in bonds will be more profitable when the stock market is slumping.  Investing some of your investment funds in bonds is safer, because that diversification allows you to have some earnings from that portion of your investment when the market is going down. It also allows you to do something called rebalancing.  This is when you have target allocation proportions for your portfolio; say 60% stock 40% bond.  Then, periodically look at your actual portfolio proportions.  Say the market is way up - then your actual proportions might be 70% stock 30% bond.  You sell 10 percentage points of stocks, and buy 10 percentage points of bonds. This over time will be a successful strategy, because it tends to buy low and sell high. In addition to the value of diversification, some bonds will tend to be more stable (but earn less), in particular blue chip corporate bonds and government bonds from stable countries.  If you're willing to only earn a few percent annually on a portion of your portfolio, that part will likely not fall much during downturns - and in fact may grow as money flees to safer investments - which in turn is good for you. If you're particularly worried about your portfolio's value in the short term, such as if you're looking at retiring soon, a decent proportion should be in this kind of safer bond to ensure it doesn't lose too much value.   But of course this will slow your earnings, so if you're still far from retirement, you're better off leaving things in growth stocks and accepting the risk; odds are no matter who's in charge, there will be another crash or two of some size before you retire if you're in your 30s now. But when it's not crashing, the market earns you a pretty good return, and so it's worth the risk. Without providing direct investment advice, I can tell you that bond most assuredly are not recession-proof.  All investments have risk, and each recession will impact asset-classes slightly differently. Before getting started, BONDS are LOANS.  You are loaning money.  Don't ever think of them as anything but that. Bonds/Loans have two chief risks: default risk and inflation risk.   Default risk is the most obvious risk. This is when the person to whom you are loaning, does not pay back.  In a recession, this can easily happen if the debtor is a company, and the company goes bankrupt in the recessionary environment. Inflation risk is a more subtle risk, and occurs when the (fixed) interest rate on your loan yields less than the inflation rate.  This causes the 'real' value of your investment to depreciate over time.   The second risk is most pronounced when the bonds that you own are government bonds, and the recession causes the government to be unable to pay back its debts.  In these circumstances, the government may print more money to pay back its creditors, generating inflation. You're mixing up two different concepts: low-risk and recession-proof. I'll assume I don't need to explain risk: there is always risk, regardless what form you keep your assets in. With bonds, the interest rate is supposed to reflect the risk. If a company offers bonds with too low an interest rate for the risk level, few people will buy them. While if a company offers bonds with too high an interest rate for the level of risk, they are gypping themselves. So a bond is a slightly more transparent investment from a risk assessment perspective, but that doesn't mean the risk is necessarily low: if you buy a bond with a 20% effective annual yield, that means there is quite a high risk that the underlying company will fold (unless inflation is in the double-digit range as well, in which case a 20% yield is not that much). Whereas with a stock, no parameter directly tells you anything about the risk. Recession-proof is not the same thing as low-risk. Recession-proof refers to investing in (or holding debt for) industries that perform better in a recession. http://www.investopedia.com/articles/stocks/08/industries-thrive-on-recession.asp. "That depends on how you're investing in them. Trading bonds is (arguably) riskier than trading stocks (because it has a lot of the same risks associated with stocks plus interest rate and inflation risk). That's true whether it's a recession or not. Holding bonds to maturity may or may not be recession-proof (or, perhaps more accurately, ""low risk"" as argued by @DepressedDaniel), depending on what kind of bonds they are. If you own bonds in stable governments (e.g. U.S. or German bonds or bonds in certain states or municipalities) or highly stable corporations, there's a very low risk of default even in a recession. (You didn't see companies like Microsoft, Google, or Apple going under during the 2008 crash). That's absolutely not the case for all kinds of bonds, though, especially if you're concerned about systemic risk. Just because a bond looks risk-free doesn't mean that it actually is - look how many AAA-rated securities went under during the 2008 recession. And many companies (CIT, Lehman Brothers) went bankrupt outright. To assess your exposure to risk, you have to look at a lot of factors, such as the credit-worthiness of the business, how ""recession-proof"" their product is, what kind of security or insurance you're being offered, etc. You can't even assume that bond insurance is an absolute guarantee against systemic risk - that's what got AIG into trouble, in fact. They were writing Credit Default Swaps (CDS), which are analogous to insurance on loans - basically, the seller of the CDS ""insures"" the debt (promises some kind of payment if a particular borrower defaults). When the entire credit market seized up, people naturally started asking AIG to make good on their agreement and compensate them for the loans that went bad; unfortunately, AIG didn't have the money and couldn't borrow it themselves (hence the government bailout). To address the whole issue of a company going bankrupt: it's not necessarily the case that your bonds would be completely worthless (so I disagree with the people who implied that this would be the case). They'd probably be worth a lot less than you paid for them originally, though (possibly as bad as pennies on the dollar depending on how much under water the company was). Also, depending on how long it takes to work out a deal that everyone could agree to, my understanding is that it could take a long time before you see any of your money. I think it's also possible that you'll get some of the money as equity (rather than cash) - in fact, that's how the U.S. government ended up owning a lot of Chrysler (they were Chrysler's largest lender when they went bankrupt, so the government ended up getting a lot of equity in the business as part of the settlement). Incidentally, there is a market for securities in bankrupt companies for people that don't have time to wait for the bankruptcy settlement. Naturally, people who buy securities that are in that much trouble generally expect a steep discount. To summarize:" During the hyperinflation of the Wiermer republic, corporate stocks and convertible bonds were thought second only to the species (gold, silver etc) as the only secure currencies.  As Milton Friedman proved, inflation is caused solely by the monetary token supply increasing faster than productivity.  In the past, days of species of currency, it was caused by governments debasing the currency e.g. streatching the same amount of silver in 50 coins to 100 coins. Sudden increases in the supply of precious metals can also trigger it. The various gold rushes in 19th century and later, improvements in extraction methods caused bouts of inflation. Most famously, the huge amounts of silver the Spanish extracted from the New World mines, devastated the European economy with high inflation. Governments use inflation as a form of stealth flat tax. Money functions as an Abstract Universal Trade Good and it obeys all the rules of supply and demand. If the supply of money goes up suddenly, then its value drops in relation to real goods and service. But that drop in value doesn't occur instantly, the increased quality of tokens has to percolate through the market before the value changes.  So, the first institution to spend the infalted/debased currency can get the full current value from trade. The second gets slightly less, the third even less and so on. In 2008, the Federal reserve began printing money and loaning at 0% to insolvent backs who then used that money to buy T-Bill. This had the duel effect of giving the banks an (arbitrary) A1 rated asset for their fractional reserve while the Federal government got full pre-inflation value of the money paid for the T-bills. As the government spent that money, the number of tokens increased fast than the economy.  In times of inflation, the value of money per unit drops as its supply increases and increases The best hedges against inflation are real assets e.g. land, equipment, stocks (ownership of real assets) and convertible bonds which are convertible to stock.  It's important to remember that money is, of itself, worthless. It's just a technology that abstracts and smilies trading which at the base, is still a barter system. During inflation the barter value of money plunges owing to increased supply. But the direct barter value between any two real assets remain the same because their supplies have not changed.  The value of stocks and convertible bonds is maintained by the economic activity of the company whose ownership they represent. Dividends, stock prices and bond equity, as measured in the inflated currency continue to rise in sync with inflation. Thus they preserve the original value of the money paid for them. Not sure why you expect more inflation. The only institution that can create inflation in the US is the Federal Reserve which Trump has no direct control off. Deregulation of banks won't cause inflation in and of itself as the private banks cannot alter the money supply. If banks fail, owing to deregulation, unlikely I think given the dismal nearly century long record of regulation to date, then the Federal Reserve might fix the problem with another inflation tax, but otherwise not. "Yes. Bonds perform very well in a recession. In fact the safer the bond, the better it would do in a recession. Think of markets having four seasons: High growth and low inflation - ""growing economy"" High growth and high inflation - ""overheating economy"" Low growth and high inflation - ""stagflation"" Low growth and low inflation - ""recession"" Bonds are the best investment in a recession. qplum's flagship strategy had a very high allocation to bonds in the financial crisis. That's why in backtest it shows much better returns."
Avoiding fees would not be the primary reason to buy bonds yourself. No, the reason to buy bonds yourself in a retirement account is that you can hold them to maturity. Bond funds can and do lose value if interest rates rise (and gain it if interest rates fall). Of course the same happens with the bond that you hold, but you can hang on to it until maturity and get the face value out of it.  That said, it would take some effort to put together a decent bond portfolio, especially if you were going to buy anything rated lower than the absolute best. I think it'd be fun to do, but I'm weird that way. If I invest X each month, where does X go - an existing (low yield)   bond, or a new bond (at the current interest rate)? This has to be viewed in a larger context.  If the fund has outflows greater than or equal to inflows then chances are there isn't any buying being done with your money as that cash is going to those selling their shares in the fund.  If though inflows are greater than outflows, there may be some new purchases or not.  Don't forget that the new purchase could be an existing bond as the fund has to maintain the duration of being a short-term, intermediate-term or long-term bond fund though there are some exceptions like convertibles or high yield where duration isn't likely a factor. Does that just depend on what the fund manager is doing at the time   (buying/selling)? No, it depends on the shares being created or redeemed as well as the manager's discretion. If I put Y into a fund, and leave it there for 50 years, where does Y   go when all of the bonds at the time I made the purchase mature?  You're missing that the fund may buy and sell bonds at various times as for example a long-term bond fund may not have issues nearing maturity because of what part of the yield curve it is to mimic. Does Y just get reinvested in new bonds at the interest rate at that time? Y gets mixed with the other money in the fund that may increase or decrease in value over time.  This is part of the risk in a bond fund where NAV can fluctuate versus a money market mutual fund where the NAV is somewhat fixed at $1/share. There will always be another recession ahead. Accept that.  Depending on your strategy, it could make sense to forge ahead. During a recession it may just take longer to recognize gains. Not always; there's plenty of ways to make money during a recession, and not all of them involve short positions.  Now, if you're 75, living off of an investment account, perhaps you should move things to something less volatile. Virtually zero risk of default; safety; diversification; guaranteed fixed income albeit very low; portfolio diversifier so it reduces total volatility; plus yields might drop even lower thus increasing the price of the bond.  Very unlikely given how obscenely low yields already are but still possible.  I thought nobody would ever buy a 10yr @ 3% and now look, rates are almost half as much and those 3% bonds are worth a lot more now on the secondary market.  Timing the bond market is really hard. "Historically, most economists considered a sustained negative interest rate impossible for just the reason you describe: an investor could outperform a bond with a negative interest rate by simply hoarding cash. For background, see Wikipedia. Experimentation by central banks in the wake of the 2007 financial crisis, however, demonstrates that slightly negative interest rates are possible. First of all, note that the ""zero lower bound"" on interest rates has everything to do with the existence of cash as an alternative. It's a lower bound on the nominal interest rate, rather than the real interest rate—that is, on the rate before adjusting for inflation. In most situations, the real interest rate is more economically meaningful, as it's the real interest rate that measures the market's preference for ""stuff now"" as opposed to ""stuff later."" There's nothing in principle or in practice to stop a negative real interest rate: there are always some people who want stuff now and some people who want stuff later; a negative real interest rate just means that people who want stuff later are more dominant in the market. As I stated earlier, what creates the ""zero lower bound"" is the existence of cash as an alternative to bonds. Even though that lower bound applies, it's not strict: hoarding cash in large quantities can be difficult and expensive, especially when central banks are doing their best to prevent you from doing it. Consequently, investors who strongly prefer ""stuff later"" to ""stuff now"" are willing to pay a slightly negative nominal interest rate on bonds in order to avoid those costs. If it were significantly negative, however, you're right that no sane investor would buy such a bond." Long term gov't bonds fluctuate in price with a seemingly small interest rate fluctuation because many years of cash inflows are discounted at low rates.  This phenomenon is dulled in a high interest rate environment. For example, just the principal repayment is worth ~1/3, P * 1/(1+4%)^30, what it will be in 30 years at 4% while an overnight loan paying an unrealistic 4% is worth essentially the same as the principal, P * 1/(1+4%)^(1/365). This is more profound in low interest rate economies because, taking the countries undergoing the present misfortune, one can see that their overnight interest rates are double US long term rates while their long term rates are nearly 10x as large as US long term rates.  If there were much supply at the longer maturities which have been restrained by interest rates only manageable by the highly skilled or highly risky, a 4% increase on a 30% bond is only about a 20% decline in bond price while a 4% increase on a 4% bond is a 50% decrease. The easiest long term bond to manipulate quantitatively is the perpetuity where p is the price of the bond, i is the interest payment per some arbitrary period usually 1 year, and r is the interest rate paid per some arbitrary period usually 1 year.  Since they are expressly linked, a price can be implied for a given interest rate and vice versa if the interest payment is known or assumed. At a 4% interest rate, the price is At 4.04%, the price is , a 1% increase in interest rates and a 0.8% decrease in price . Longer term bonds such as a 30 year or 20 year bond will not see as extreme price movements. The constant maturity 30 year treasury has fluctuated between 5% and 2.5% to ~3.75% now from before the Great Recession til now, so prices will have more or less doubled and then reduced because bond prices are inversely proportional to interest rates as generally shown above. At shorter maturities, this phenomenon is negligible because future cash inflows are being discounted by such a low amount.  The one month bill rarely moves in price beyond the bid/ask spread during expansion but can be expected to collapse before a recession and rebound during. "The answer depends on what is your portfolio's objective.   If you are operating a multi-asset class portfolio (i.e. your portfolio has both bonds and stocks) and are targeting absolute returns, then yes, comparing a stock's beta (or correlation) to a bond benchmark makes sense. What you do with this stock's ""bond beta"" information further depends on what kind of return profile you want your multi-asset class portfolio to have. If you want stocks that appreciate in price when bond prices decline, then of course you want to buy ""negative bond beta"" stocks.  If you are operating a purely relative equity portfolio (i.e. you are benchmarked to the stock market), then comparing the ""bond beta"" is of little use to you.  Hope this helps." "Investment strategies abound. Bonds can be part of useful passive investment strategy but more active investors may develop a good number of reasons why buying and selling bonds on the short term. A few examples: Also, note that there is no guarantee in bonds as you imply by likening it to a ""guaranteed stock dividend"". Bond issuers can default, causing bond investors to lose part of all of their original investment. As such, if one believes the bond issuer may suffer financial distress, it would be ideal to sell-off the investment." Gundlach shared a chart that showed how investors in European “junk” bonds are willing to accept the same no-default return as they are for U.S. Treasury bonds. In other words, the yield on European “junk” bonds is about the same—between 2 percent and 3 percent—as the yield on U.S. Treasuries, even though the risk profile of the two could not be more different.  Sounds like a strong indicator to me. How might this play out in the US? Long-term bonds -- any bonds, really -- can be risky for two main reasons:  return on principal, or return of principal.  The former is a problem if interest rates are low (which they are now in the US) because existing bonds will fall in price if interest rates rise.  The second is a problem if the lender defaults: IOU nothing. No investment is riskless.  Short-term bonds command a lower interest rate than long-term bonds (usually) because of their quicker maturity, but short-term bonds carry risk just like long-term bonds (though the interest rate risk is lower, sometimes quite a bit lower, than for long-term bonds). (1) People have been predicting recessions as long as we can remember. That's a no-brainer. Participation trophy for being the next schmuck to do so.    (2) It's still a given. Many are saying the bailouts that took place in response to the Great Recession didn't allow for a proper correction. That may be what worsens the effects of the next asset bubble burst. "Looking at the list of bonds you listed, many of them are long dated. In short, in a rate rising environment (it's not like rates can go much lower in the foreseeable future), these bond prices will drop in general in addition to any company specific events occurred to these names, so be prepared for some paper losses.  Just because a bond is rated highly by credit agencies like S&P or Moody's does not automatically mean their prices do not fluctuate. Yes, there is always a demand for highly rated bonds from pension funds, mutual funds, etc. because of their investment mandates. But I would suggest looking beyond credit ratings and yield, and look further into whether these bonds are secured/unsecured and if secured, by what. Keep in mind in recent financial crisis, prices of those CDOs/CLOs ended up plunging even though they were given AAA ratings by rating agencies because some were backed by housing properties that were over-valued and loans made to borrowers having difficulties to make repayments. Hence, these type of ""bonds"" have greater default risks and traded at huge discounts. Most of them are also callable, so you may not enjoy the seemingly high yield till their maturity date. Like others mentioned, buying bonds outright is usually a big ticket item. I would also suggest reviewing your cash liquidity and opportunity cost as oppose to investing in other asset classes and instruments." Can anyone suggest all type of investments in India which are recession proof? There are no such investments. Quite a few think bullions like Gold tend to go up during recession, which is true to an extent; however there are enough articles that show it is not necessarily true. There are no fool proof investments. The only fool proof way is to mitigate risks. Have a diversified portfolio that has Debt [Fixed Deposits, Bonds] and equity [Stocks], Bullion [Gold], etc. And stay invested for long as the effects tend to cancel out in the long run. "There was a time when government policy was actually pretty damn smart. There were a range of ""automatic stabilizers"" that kicked in when there was a recession and they had a fast and large impact.  It wasn't until Reagan that we started to chip away at those as well as go into a perpetual debt stimulus posture. These two actions helped to prime the system for an inevitable ""large"" shock.  Even now, after one of the longest expansions in history we're STILL running a substantial deficit. And as such the appetite to expand it when the next recession hits will be diminished (as it was during the great recession when we really needed 3 trillion in stimulus spending and got less than 1)." Keep in mind there are a couple of points to ponder here: Rates are really low. With rates being so low, unless there is deflation, it is pretty easy to see even moderate inflation of 1-2% being enough to eat the yield completely which would be why the returns are negative. Inflation is still relatively contained. With inflation low, there is no reason for the central banks to raise rates which would give new bonds a better rate. Thus, this changes in CPI are still in the range where central banks want to be stimulative with their policy which means rates are low which if lower than inflation rates would give a negative real return which would be seen as a way to trigger more spending since putting the money into treasury debt will lose money to inflation in terms of purchasing power. A good question to ponder is has this happened before in the history of the world and what could we learn from that point in time. The idea for investors would be to find alternative holdings for their cash and bonds if they want to beat inflation though there are some inflation-indexed bonds that aren't likely appearing in the chart that could also be something to add to the picture here.