Bonds are preferred by buy-and-hold investors or those getting close to retirement, who value relative safety and price stability and are content with lower returns than what stocks may offer over the long term. Bonds also serve as a key component of the investment portfolios of pension funds and life insurance providers, among others.
Some bonds are indexed to the consumer price index (CPI) and can be used as a hedge against inflation. For example, the Treasury Inflation-Protected Securities (TIPS) issued by the US Treasury are linked to US inflation. Similar products exist in the UK, Canada, India, Italy and Hungary, among many other countries.
For the actual process of buying bonds, please refer to our article “How to buy bonds?”
What else do you need to know about bonds?
Want to learn more before deciding what’s your optimal bond allocation? You might want to check out these other articles to deepen your knowledge.
- What is a bond? (our main article in the bond section)
- What is a bond yield?
- How do bonds work?
- What happens when a bond comes due?