Advantages of using bonds
Advantages to having bonds in an investment portfolio
Capital preservation
Unlike equities, non-complex bonds should repay principal at the maturity date. They also have higher seniority than equities, as bondholders must be fully repaid before shareholders start receiving any money (during a liquidation or bankruptcy process).
Steady income streams
Most of the bonds (especially fixed income bonds that are the dominant group) have a fixed schedule and amount of payments until their maturity.
Diversification and hedging benefits
Bonds tend to have a low correlation with equities, which means that including bonds in your portfolio helps to diversify it. Moreover, in most cases of an economic slowdown (when equities underperform) bonds tend to outperform equities. This is due to the decrease of interest rates that are usually triggered by the slow GDP growth.
For more information on the risks associated with financial instrument transactions, consult our Risk Description.