Why Invest in Bonds?
Many 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. Whatever your investment goals, your investment advisor can help explain the investment options available, taking into account your income needs and tolerance for risk.
Typically, bonds pay interest semiannually, which means they can provide a predictable income stream. Many people invest in bonds for that expected interest income and also to preserve their capital investment. Understanding the role bonds play in a diversified investment portfolio is especially important for retirement planning. During the past decade, the traditional defined-benefit retirement plans (pensions) have increasingly been replaced by defined contribution programs such as 401(k) plans or IRAs. Because these plans offer greater individual freedom in selecting from a range of investment options, investors must be increasingly self-reliant in securing their retirement.
Whatever the purpose—saving for your children’s college education or a new home, increasing retirement income or any of a number of other financial goals—investing in bonds may help you achieve your objectives.