Listen to a Business English Dialogue About Nine bond rule
Emma: Hi Timothy, have you ever heard of the “Nine bond rule” in finance? It’s a guideline that suggests investors should have at least nine different bonds in their portfolio to minimize risk.
Timothy: Oh, I see. Why is it called the “Nine bond rule”?
Emma: It’s called that because having a diversified portfolio with nine bonds helps spread risk across different issuers, industries, and maturities, reducing the impact of any single bond defaulting.
Timothy: How do investors choose which bonds to include in their portfolio under this rule?
Emma: Investors typically consider factors like credit quality, yield, maturity, and diversification when selecting bonds for their portfolio to meet the guideline.
Timothy: Are there any drawbacks to following the Nine bond rule?
Emma: One potential drawback is that maintaining a diversified portfolio with nine bonds may require a larger investment capital, and it may also limit potential returns compared to more concentrated portfolios.
Timothy: Can the number of bonds in the portfolio be adjusted based on individual investor preferences or risk tolerance?
Emma: Absolutely, the “Nine bond rule” is a guideline, not a strict rule, so investors can adjust the number of bonds in their portfolio based on their risk tolerance, investment goals, and market conditions.
Timothy: How do bonds contribute to a diversified investment portfolio?
Emma: Bonds provide stability and income to a portfolio, especially during times of market volatility, and their performance often behaves differently from stocks, providing diversification benefits.
Timothy: What are some key considerations for investors when building a bond portfolio?
Emma: Key considerations include understanding bond characteristics, assessing credit risk, considering interest rate risk, and maintaining diversification to manage overall portfolio risk.
Timothy: Thanks for explaining, Emma. The “Nine bond rule” sounds like a helpful guideline for building a balanced bond portfolio.
Emma: You’re welcome, Timothy. It’s one of many strategies investors can use to create a diversified and resilient investment portfolio.