A bond is a loan to a government or company. You (or an ETF) receive interest and, typically, principal back at maturity — unless the issuer defaults.
Why hold bonds?
- Diversify equity risk
- Provide more stable income than stocks (usually)
- Act as dry powder psychologically in crashes (behavioural ballast)
Bond risks (simple)
| Risk | Meaning |
|---|---|
| Interest-rate risk | Prices fall when rates rise (more for longer duration) |
| Credit risk | Issuer may not pay |
| Inflation risk | Fixed coupons buy less over time |
| Currency risk | Foreign bonds in your home currency terms |
Bond ETFs vs single bonds
Most retail investors use bond ETFs instead of buying individual bonds:
- Instant diversification across many issuers
- Easy to trade in small amounts
- No need to ladder maturities manually
Trade-off: ETF price fluctuates; you’re not holding to a single maturity the same way.
How much?
Depends on horizon and risk tolerance. Some investors use age-based heuristics; others set a fixed sleeved target and rebalance. There is no universal correct percentage.
Key takeaways
- Bonds are ballast and income tools, not “risk-free forever”.
- Duration and credit quality drive most of the behaviour.
- Bond ETFs are the practical on-ramp for beginners.
Educational only — not personalised investment advice.