Bonds provide a known income stream (known as coupons). This reliability of income is hard to come by in other investments. Upon maturity of a bond, the bondholder gets the principal amount that was invested in the bond, with regular coupons received as interest payment in the interim.
Bonds have a defined lifespan, from its issuance until its maturity. During the life of a bond, its price may fluctuate whilst traded on the secondary market. However, if bondholders hold a bond until maturity, they are certain to receive the principal of the bond at par value, barring the risk of default. Investing in bonds can help to preserve one’s capital, should one hold the issue to maturity.
Generally, bonds do not move in tandem with equities and provide additional diversification for investors as compared to having just equities across sectors. Diversification across asset classes can provide investors with better risk-adjusted returns than a portfolio with equities.
Bonds often act as a portfolio stabiliser during market downturns. During past stock market crashes, bonds were able to deliver excellent resilience to investors, thanks to its steady and predictable cash flows which helped soften the fluctuations of prices. Enhance the resilience of your portfolio with a bond today.