Category:Bonds

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The Bonds category describes fixed income investments, other than short-term instruments better characterized as money market securities/cash. Included are individual marketable fixed income securities, mutual funds and ETFs which hold them, and US Savings Bonds.

Bonds are a key part of any portfolio. For instance, Graham's timeless advice was to never hold less than 25% of your portfolio in bonds (or more than 75%). John Bogle recommends "roughly your age in bonds"; for instance, if you are 45, 45% of your portfolio should be in high-quality bonds. Bogle also suggests that, during the retirement distribution phase, you include as a bond-like component of your wealth and asset allocation the value of any future pension and Social Security payment you expect to receive. (See Rules of thumb)

The highest quality bonds are issued by the U.S. Treasury. The Federal government has never defaulted on its debt, a track record which has its roots in Hamilton's decision to assume the separate state debts. The lowest quality (and therefore riskiest) bonds are in the categories of high yield bonds and emerging market bonds. Between high-quality and low-quality bonds lie a variety of investment-grade securities--securities which take on some risks but which are still safe enough to serve as the safe "bonds" to which Graham and Bogle refer. High-yield securities ("junk bonds") are sufficiently risky that you should not include them in the rules-of-thumb regarding asset allocation.

For a good understanding of bonds, start with Bond basics and then move on to advanced topics. In particular, understanding duration is essential to being a knowledgeable bond investor, whether you choose to invest in bonds through funds or by holding individual issues directly.

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