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I read a few books about asset allocation, e.g. Bernsteins's Asset Allocation states that mixing bonds with stocks lowers the risk significantly but only decreases the profit slightly. So there is a free lunch from diversifying these asset classes. A German book about investing recommends a AAA government bond ladder in the own currency for lowering the portfolio's risk profile. Both describe diff. riks types, risk types which can be diversified (indexing, asset allocation) and have no premium and a market risk which cannot be reduced.

But AAA bonds with low maturity in my home currency (EUR) seem to be a losing bargain. I found similar results here:

Clearly it makes no sense for a private individual to purchase these bonds since they will be better off simply holding cash. CIBC bonds with negative return

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The simple answer: Because you believe every other option can yield greater losses... Why would I buy a Bond at a Negative Interest rate?

So does it make sense from an asset allocation/risk-reducing perspective to invest in these negative yielding bonds? Or is the risk-lowering effect lost if the bond has no/a negative yield? Otherwise, I may choose a "100%" equity portfolio and keep a cash reserve.

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    "mixing bonds with stocks not only lowers the risk but also increases profit" I'm pretty sure this is not correct. In some periods you might make more but the expected profit is going to be less.
    – D Stanley
    Apr 17, 2018 at 13:38
  • You are right, I missed that a small amount of stocks to a bond portfolio reduces risk and increases return. A small amount of bonds to a stocks portfolio decreases risk significant but lowers return slightly. He writes in general that mixing uncorrelated assets reduces risks and increases returns. I edited the question.
    – Andi Giga
    Apr 18, 2018 at 12:30
  • @AndiGiga you hedge your risk like that so yes it makes sense. That being said there's various types of bonds,while it goes down to your risk profile you dont have to go for negative yield ones.
    – Leon
    Apr 18, 2018 at 14:12
  • @Leon, thx both books recommend government bonds with the highest rating. The German book from Gerd Kommer recommends additionally to use bonds which are issued in the home currency to avoid currency risks. From what I read so far corporate bonds shall be avoided because they correlate with stocks and stocks are a better option than. Which types of bonds would you suggest and why?
    – Andi Giga
    Apr 18, 2018 at 16:02

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Compiled into an answer:

Yes, you do hedge your risk by adding bonds to your portfolio so it makes sense. That being said there's various types of bonds, so while it goes down to your risk profile, you don't necessarily have to go for negative yield ones. If you re risk averse you may as well do that, but by no means are you required to.

Im not a financial advisor and bonds arent my niche, in fact I let my traditional market investing to ETF portfolios but bonds DONT correlate with stocks. As long as the company/nation is solvent, bonds will be paid, end of story. You dont care one bit about stock price fluctuation. This is why during the 2008 turmoil there were some great deals to be had where bonds from very solid companies were sold with massive discounts left and right from people panicking the world has ended.

That being said, you can also keep cash in bank accounts if you re really risk-averse instead of negative yield bonds. Your deposits are guaranteed by the EU/country of origin up to certain amounts (this should be €100,000 per depositor per credit institution), so unless you have substantial amounts that cannot be covered under this you can just leave it there.

Now if you re more risk seeking, find a company(especially in Germany theres dozens of fundamentally solid companies with hundreds of years of existence) you are confident to not fail within the period the bond will mature and go with that.

p.s. Bonds denominated in home currency are a good choice, since this removes your exposure to currency fluctuations losing/making you money.

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