Financial Basics · Investing Fundamentals

Bonds

Definition

A bond is a loan you make to a government or corporation. In exchange, the issuer pays you periodic interest (coupon) and returns your principal at maturity.

Why it matters in retirement

Bonds cushion a portfolio during stock crashes, provide predictable income, and let retirees meet near-term spending needs without selling stocks at bad prices. The right bond allocation is the difference between riding out a bear market and being forced to sell low.

Key Numbers — 2026

10-year Treasury yield (recent)
~4.3%
Investment grade corporate
~5.0%
Typical retiree bond allocation
30–50%
Duration rule of thumb
1 yr = 1% price move

Pros

  • Lower volatility than stocks
  • Predictable income stream
  • Capital preservation (high-quality issuers)

Cons

  • Interest-rate risk (long bonds fall when rates rise)
  • Inflation erodes fixed payments
  • Lower long-term returns than stocks

Common mistakes

  • Buying long-duration bonds in a rising-rate environment
  • Chasing yield into junk bonds without understanding default risk
  • Using bond funds when you need a specific maturity date
  • Forgetting that Treasuries are exempt from state income tax

Related

Treasury Bonds

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Bond Ladder

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ETFs (Exchange-Traded Funds)

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Stocks

A stock is a fractional ownership share in a publicly traded company. Stockholders benefit when the business grows (price appreciation) and,…

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