Why investing in bonds?

I am sure that you came across people, who were examining their portfolio. Investing in bonds is certainly a safe haven, especially for those ones that are new to the field and cannot bear high losses in the equity market.

Unlike equity, debt, also called bonds or fixed income, provides stable and constant returns, albeit smaller in its respective rate of return. It can furthermore be used to hedge against losses in riskier asset classes, such as derivatives. With less and more predictable volatility than any other type of asset, bonds should undoubtedly be a portion of your portfolio. Not only have debtholders priorities over shareholder in case of default, but also do they provide a risk-free investment. This is usually guaranteed by US Treasury bills, which are considered to be risk-free because the government of the United States does not default on its obligations.

Therefore, bonds are favourable for those investors that do not require liquidity in the short run. People trying to safe for their retirement can prudently assess their earned interest over time and predict their desired retirement date. Stocks, on the other hand do not provide this feature.

This allows the young investors to outperform many experienced mutual fund managers that were struggling to keep alive some long streaks of beating their benchmarks.