The Role of Bond Funds in a Portfolio

percentBonds tend to have less risk than stocks, but at the cost of less return. However, a proper use of certain kinds of bonds may temper the risk of your overall portfolio using diversification.

Most people concentrate on investments only from a focus on returns. Diversification is an important factor to consider too, and bonds are an important ingredient.

Long term bonds act similar to stocks with more up and down changes in prices with changes in market interest rates. Short terms bonds have less changes. So an application of bonds is to temper portfolio value fluctuations through the use of short term bonds and seek the stock like returns from just stock without the use of long term bonds in the portfolio; in other words, get stock like volatility from just stocks and portfolio shock absorbers from short term bonds.

The below short article is a brief discussion about bonds in general.

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