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Bonds Why Bonds? Bonds comprise the second level of the investment pyramid. Although riskier than cash, they are still positioned on the lower part of the pyramid and are generally considered to be conservative investments. Bonds maybe good instruments to use for a medium-term holding period. Click on each of the features on the left for a more complete understanding of why people invest in bonds. Relative Safety       Although bond prices fluctuate and past performance is not an indication of future results, the fluctuations are usually much less than with stocks. Diversification       Sometimes the kinds of conditions that depress stock prices, such as a recession or a sluggish economy, will boost bond prices. This makes bonds ideal to help diversify a portfolio. Higher Return than Cash       The yields on bonds are usually higher than the interest rates on bank instruments and other cash investments, so bonds provide a good alternative to cash instruments. However, unlike bonds, bank instruments are insured by the FDIC up to $100,000 per account per institution. Income       Bonds usually produce a steady stream of income you can reinvest or use for living expenses. The price of the bond may fluctuate, but barring default on the part of the issuer, the income remains the same. How much should I keep in bonds to stay properly diversified? See the Financial Overview Quick Report. < PREVIOUS NEXT > #38599