Bonds

The stability layer — the largest part of a Conservative or Balanced allocation.

What They Are

Lending rather than owning

A bond is a loan to a government or company. In return they pay interest over a defined period and repay the principal at maturity. You are a lender, not an owner — which is why the return profile is steadier than equities.

Bonds and comparable low-risk instruments make up 50–70% of a typical allocation. Their job is not to generate the portfolio’s growth. It is to reduce how violently the portfolio moves.

That stability is what makes a long-term plan survivable. A portfolio you can hold through a downturn without panic-selling will usually outperform a more aggressive one you abandon at the wrong moment.

The Role

What bonds contribute

Lower volatility

Bond prices generally move far less sharply than equity prices, which steadies the overall portfolio.

Predictable income

Interest payments follow a defined schedule, which makes future cash flows easier to plan around.

A drawdown buffer

In retirement, holding safe assets means you can fund spending without selling equities during a market fall.

Honest Assessment

The risks that remain

Interest rate risk When rates rise, the market value of existing bonds falls. Bonds are lower risk than equities, not risk-free.

Inflation risk If inflation exceeds the interest rate, purchasing power erodes even though the nominal value holds.

Credit risk A corporate issuer can default. Government bonds from stable economies carry materially lower credit risk.

Lower long-run returns Over long horizons bonds have historically returned less than equities. That is the cost of the stability.

Role in the portfolio Typically 50–70% of the allocation, depending on your risk profile.

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