Bonds are fixed-income investments that allow investors to lend money to governments, municipalities or companies in exchange for interest payments and the return of principal at maturity.
Disclaimer: Bond yields, prices and availability change over time. Bonds can lose value, and credit, interest-rate and inflation risks vary by issuer and maturity.
What Can Affect Bond Performance?
Interest Rates
Bond prices generally move in the opposite direction of interest rates.
Credit Quality
An issuer’s financial strength can affect both bond prices and the risk of default.
Maturity
Longer-term bonds are often more sensitive to changes in interest rates.
Inflation
Inflation can reduce the purchasing power of future interest and principal payments.
Market Demand
Investor demand can cause bond prices and yields to rise or fall.
Call Risk
Some bonds can be repaid early by the issuer, which may affect expected income.
Who May Consider Bonds?
Bonds may be worth considering if you want income, diversification or a potentially more stable component within an investment portfolio.
Common Reasons
Generating investment income
Diversifying a stock-heavy portfolio
Reducing portfolio volatility
Preserving capital
Planning for retirement income
Matching investments to future expenses
Adding fixed-income exposure
Benefits and Things to Consider
Benefits
Regular interest income may be available
Wide range of maturities
Can help diversify portfolios
Government and corporate options available
Some bonds may provide tax advantages
Things to Consider
Bond prices can decline
Interest-rate risk can be significant
Some issuers can default
Inflation can reduce real returns
Higher yields generally involve higher risk
Bonds vs. Other Investments
Bonds
Fixed-income investments that generally provide interest payments and return principal at maturity.
