A few weeks ago, a reader in Ottawa wrote to me with a fascinating question. He explained that he was investing for his retirement and wasn’t going to touch his savings for at least three decades. Since stocks have always done better than bonds over long periods of time, why should he hold any bonds at all? Why not go with an all-stock portfolio?

My first reaction was to scoff. No one has an all-stock portfolio. It’s too much of a good thing, like eating nothing but ice cream for dinner, or spending eight hours on a roller coaster. But it turns out that our reader was asking a good question, one that still causes heated debate among top investing gurus.

Why do we need bonds?

Conventional portfolios almost always contain a healthy dollop of bonds, because investing can be a wild and scary ride, and bonds can cushion the bumps without significantly hurting your returns.

For example, if you went all-stock and invested your life savings in the major players on the Toronto Stock Exchange 30 years ago, you would have enjoyed an average annual return of 12.1%. That sounds fantastic, but it glosses over the horrifying years you would have endured along the way. Like 1990, when the markets went into a funk that would have cost you 15% of your money in three years, or 2001, when you would have lost 24%.