"Many investors regard bonds as the frumpier cousins to stocks. Their prices rarely pop or plummet. They usually deliver a lower return, and-aside from a glamorous cameo in the 1980s thriller Die Hard-they are not part of popular culture in the same way as, say, GameStop or Tesla shares. They are, though, a critical part of any well-managed portfolio, and with the stock market looking particularly frothy, this may be more true than ever."
"In 2025, owners of Nvidia shares enjoyed a gain of around 39%-not quite the eye-popping 171% jump the stock notched in 2024, but a very fine return all the same. Owners of the popular 10-year Treasury bill, meanwhile, settled for an annual take of around 4.5%. This illustration underscores the modest returns that come with bond investing, but it doesn't reflect years like 2008 and 2020, when the stock market declined around 38% and 19% respectively, while bonds reliably delivered positive single-digit returns."
Bonds function as loans to governments or companies that pay fixed interest over a set period and typically offer lower, steadier returns than stocks. Bonds often outperform during equity market downturns, delivering positive single-digit returns in severe selloffs. Interest rates, or coupons, generally rise with perceived borrower risk, providing a clear risk-return signal. Treasury Inflation-Protected Securities (TIPS) adjust payouts with the consumer price index to preserve purchasing power. Many investors are uncertain which bonds to buy or how to evaluate them, yet bonds remain a core element of diversified, risk-managed portfolios.
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