A Safe Haven for Your Money
Investing in debt is safer than other forms of investing. That’s because debt holders have priority over shareholders. If a company goes bankrupt, debt holders (creditors) are ahead of shareholders in the line to be paid. In this worst-case scenario, the creditors usually get at least some of their money back, while shareholders often lose their entire investment.
In terms of safety, bonds from the Government (Treasury bonds) are considered risk-free (there are no risk-free stocks). Even bonds from large corporates carry a high element of safety and security.
If capital preservation i.e. never losing your principal investment – is your primary goal, then a bond is your best bet.
The returns from bonds are very predictable.When bonds make up a portion of your portfolio, they can help smooth out the bumps when a recession comes along and the equity markets tank.
Also, in certain life situations, people may need security and predictability. Retirees, for instance, often rely on the predictable income generated by bonds. By owning bonds, retirees can predict with a greater degree of certainty how much income they’ll have in their later years.
Better returns than Bank deposits
The interest rates on bonds are typically greater than the rates paid by banks on savings accounts. As a result, if you are saving and you don’t need the money in the short term (in a year or less), bonds will give you a relatively better return without posing too much risk.