In the midst of a strong stock market rally, it’s not uncommon for investors to have a mix of enthusiasm and even more concern. “Why haven’t I done as well as the market?”, investors may ask. And it’s a fair question–especially when headlines boast of record highs and double-digit returns. The answer, in a word, is diversification – or the spreading of risk. And at the heart of that diversification lies an underappreciated asset class: bonds. While it’s tempting to view fixed-income as a drag on returns when stocks are hot, the reality is that bonds play a critical, stabilizing role, especially for investors in the withdrawal phase of their financial lives. This article explores two often-overlooked benefits of holding bonds in a portfolio: their impact on volatility and their ability to help prevent negative compounding. Understanding Negative Compounding At our firm, we define negative compounding as the down-market impact on dollars which is often amplified by distributions. It’s the classic retiree’s dilemma–taking income from a portfolio that’s temporarily under water. When this happens, not only is capital being depleted during a downturn, but the