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Chapter 16 — Why Invest in Bonds?
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Why Invest in Bonds?

Bonds are very reliable and safe investments compared to the volatile world of the stock market. Not only do you know the amount of return that the bond will pay, you know exactly when that money will be paid. The bond is legally secured and the company has to pay the bond investors even if they go out of business.

US Treasury bonds are considered the benchmark of a “risk-free” investment. While Treasury bonds are not appealing to individual investors because of their low return, they are purchased in large quantities by banks and other institutions because they are the standard of reliability.

One strategy bond investors can use is called a bond ladder where their bonds mature at different times. Investors can thus retain liquidity in their investments since their bonds will mature at different times rather than having to wait for one specific date. This strategy reduces their exposure. Likewise, fixed-income investing can be appealing to investors who care more about safety than high returns.

Quiz

Which of these investors is most likely to purchase treasury bonds?

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Incorrect
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  • 1
    An individual saving for retirement
  • 2
    A young professional trying to build net worth.
  • 3
    An institutional investor that needs accountability and security of their investments.
  • 4
    A retired person that is living on a fixed budget.
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