Bonds have enjoyed a bull market since the 1980s, but many economists now believe that this may be coming to an end.

Although usually considered a conservative investment, bonds have produced high returns for decades because of declining inflation rates throughout the world economy, as well as several other factors.

However, a recovery from the 2008 economic crisis may be reversing the process. Central banks, including those from Japan, the U.S. and the U.K., have used a loose monetary policy and kept interest rates near-zero to help the global economy. Now that rates are near historic lows, many believe that the only way for them to go after an intervention from central banks stop is up, which would cause the price of bonds to fall for the first time in years.

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A chart of bond and stock yields since 1920, with bonds in blue.

 

For individual investors, bonds may still provide diversification which is one of the main reasons for owning them. Purchasing bonds with shorter term duration will help lower interest rate risk.

There are several alternatives as well: high dividend paying stocks, Real Estate Investment Trusts (REITs), and Treasury-Inflation Protected Securities (TIPS) all can provide income, while reducing interest rate risk.

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