Many investors view bonds as the close cousin of stocks. Their prices rarely rise or plummet. They generally bring lower returns, and – aside from charming cameos in 1980s thrillers – Die Hard– They’re not part of pop culture, like, game station or Tesla stock. However, they are an important part of any well-managed organization. folderand from the perspective of the stock market special foamwhich may be truer than ever.
On the surface, bonds are simple: Investors borrow money from a government or company and receive guaranteed returns and interest over a fixed period of time. But compared to what they know about stocks, many investors are less sure which bonds to buy, or how to buy or value them. wealth Interviews with three experts who walk us through some of the basics of bonds but also share some lesser-known insights.
“Shock Absorber”
In 2025, owners NVIDIA Shares are up around 39% – not quite up to the eye-popping 171% gain in 2024, but pretty good return All the same. Meanwhile, holders of the popular 10-year Treasury note agree to an annual interest rate of about 4.5%. The chart highlights the modest returns that bond investing has delivered, but it doesn’t capture years like 2008 and 2020, when stocks fell around 38% and 19%, respectively, while bonds reliably delivered positive single-digit returns.
“Bonds are a shock absorber for a portfolio,” said Allan Roth, a former financial analyst. McKinsey Consultant and founder of Wealth Logic, whose mantra is “Dare to be dull.” Ross recommends that every investor hold bonds, especially Treasury Inflation-Protected Securities (TIPS), whose payouts fluctuate with changes in the Consumer Price Index to stay ahead of inflation.
Another advantage: There is a clear correlation between a bond’s interest rate, or “coupon,” and the borrower’s soundness: the greater the perceived risk of default, the higher the interest rate. Richard Carter, vice president of fixed income products at Fidelity, noted that bonds have the added benefit of predictability. “You know when to pay the coupon and when to repay the bond. It’s timeless and attractive, especially for seniors looking for income.”
bonds are Not entirely predictablecertainly. If the issuer’s financial condition worsens, their price could plummet, causing problems for those looking to sell before the term expires. Investors risk losing their capital if the issuer becomes insolvent. And then there are black swan years like 2022, where bonds have their worst year ever as inflation suddenly spikes, eclipsing the coupon rates of most bonds. (It’s worth emphasizing, though, that the stock market did even worse that year.)
Most bonds, like stocks, are highly liquid and easy to buy. Investors can use brokerage platforms such as Fidelity and Charles Schwab to purchase bonds on the primary or secondary markets at little or no cost. They can also buy ETFs that invest in a variety of bonds at very low fees, while those looking for higher returns can consider more actively managed funds.
Which bonds to buy?
Despite feeling anxious recently U.S. debt levels are becoming unsustainableBond experts emphasize that Treasury bills remain a rock-solid investment and should be the cornerstone of any bond portfolio. Although the 10-year Treasury yield has fallen below the 5% or higher levels seen two years ago, it remains well above inflation.
Wealth Logic’s Ross recommends investors buy short- and medium-term Treasuries. Kathy Jones, chief fixed income strategist at Charles Schwab, endorses the popular “ladder” strategy of buying bonds that mature at different times to insulate investors from interest rate swings.
Treasury bills also have an advantage that dividend stocks don’t: Their yields are not subject to local or state income taxes. This makes them particularly attractive to residents of high-tax states like New York and California. Income from municipal bonds, or “muni bonds,” issued by cities and other local authorities are also generally exempt from federal income taxes. For those who want to calculate the value of these savings, Fidelity and other companies offer online calculators that allow users to see how tax-advantaged yields compare to other fixed-income products.
While investors may be hesitant to hold bonds in fiscal basket cases like Chicago or Illinois, Jones said actual defaults are almost unheard of because government entities don’t fail. Investors are more concerned that advertised municipal bond yields may be misleading. As Ross explains, brokerage firms that sell municipal bonds can exploit regulatory loopholes to tout too-good-to-be-true rates that reflect a portion of an investor’s initial capital when calculating the municipal bond’s total yield. The result: The promised 6% annual return may be closer to 4%.
Finally, there are corporate bonds. Those looking for safe and reliable returns can buy bonds from companies rated BBB or higher, or buy funds that incorporate them into a broader portfolio; those with a greater appetite for risk can invest in “junk” bonds that offer higher yields but lower ratings.
Jones said now is a particularly good time to consider corporate bonds because corporate profits are particularly strong. However, a cautious Ross warned that the company’s fortunes could suddenly reverse. “I remember when GM was ‘as safe as America,'” he recalled, but it declared bankruptcy during the 2009 financial crisis. He said investors should resist the temptation to chase extra yield: “Let bonds be the most boring part of the portfolio.”
Three basic bond buckets
Bonds can be the ultimate portfolio backstop, delivering reliable returns in good times and bad. But which bonds to buy? To be on the safe side, it’s best to choose bonds with a credit rating of BBB or better. Here are three popular options:
Treasury Bills: The ultimate safe investment, the popular 10-year Treasury bond typically offers yields well above the rate of inflation, with the added advantage of being exempt from state and local income taxes. A better option might be TIPS—Treasuries that offer guaranteed interest rates above inflation.
Municipal Bonds: “Municipal bonds” can provide higher returns than Treasury bonds while offering a particularly nice benefit: They are not taxed at the state or federal level. But be aware of the rates published by brokerage firms, which tend to overstate actual returns (see main article).
Corporate bonds: For many investors, Microsoft (Grade AAA) and apple (rated AA+) appear to be financially sounder than many governments; their bonds also generally offer higher yields than “sovereign bonds.” But be careful: unlike governments, any company can fail.
This article appeared in February/March 2026 question wealth The title is “Learning to Love Bonds.”
This story was originally published on wealth network