Myths around Bonds
Myths around Bonds:
1. Bonds are only for experts and wealthy investors
Bonds are accessible to investors of all levels of experience and income.
Governments, municipalities, and corporations issue bonds to raise capital. They provide a fixed income stream and can be purchased at different prices. Bonds offer stability and diversification and can be an integral part of an investment portfolio.
Beginners can start investing in bonds through debt mutual funds or bond ETFs, which provide diversification and professional management.
2. Adding bonds to your portfolio reduces overall returns
While it’s true that bonds might not match the high returns of stocks during bull markets, their inclusion in your portfolio can enhance overall risk-adjusted returns.
During times of market volatility, when stocks may decline, bonds can provide a buffer and reduce your overall portfolio risk. Diversification with bonds can improve the risk-adjusted returns of your portfolio.
The inclusion of bonds can lead to a more balanced and less volatile portfolio, which can be beneficial for long-term wealth accumulation and financial stability.
3. Bonds have a fixed price throughout their tenure
The value of bonds can fluctuate in the secondary market during their tenure. Several factors, including interest rates, credit ratings and market conditions, influence bond prices.
When interest rates rise, bond prices tend to decrease and vice versa.
If you sell bonds before maturity, you may receive more or less than your initial investment, depending on market conditions. However, if you hold until maturity, bonds typically provide the promised face value.
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