Why invest in bonds?
Most personal financial advisors recommend that investors maintain a diversified investment portfolio consisting of bonds, stocks and cash in varying percentages, depending upon individual circumstances and objectives. Because bonds typically have a predictable stream of payments and repayment of principal, many people invest in them to preserve and to increase their capital or to receive dependable interest income. Whatever the purpose-saving for your children’s college education or a new home, increasing retirement income or any of a number of other worthy financial goals-investing in bonds can help achieve your objectives. That’s especially true for retirement planning. While these plans offer greater individual freedom in selecting from a range of investment options, investors must also be increasingly self-reliant in securing their retirement lifestyles.
• Stable Income The interest income earned by bonds is generally higher and more stable than the interest earned by investments such as money market funds, certificates of deposit (CDs), or bank passbook accounts. (Bank deposit accounts and CDs are guaranteed [within limits] as to principal and interest by an agency of the federal government.) Accordingly, many investors — particularly retirees — who need current income use bond funds for a substantial part of their investment portfolios. Diversification Many investors in the stock market also hold bonds to help smooth out the inevitable fluctuations in the value of their overall investment portfolios. Although bond funds can fluctuate in value just as stock funds do, bond funds do not always move in the same direction or to the same degree as stock funds.
