Flexible Bond Investments: Diversify with Corporate & Government Bonds (2024)

FAQs

How do you diversify bond investments? ›

Government bonds and corporate bonds are ideal instruments for anyone seeking to invest in fixed - income opportunities. Government bonds accompany minimal credit risk but pay lower interest rates. Corporate bond investing carries low levels of default risk but compensates you with higher yields.

One reason corporate bonds yield more than safe government bonds is because they're riskier. In contrast, a government can raise taxes or issue its own currency to repay the debt if it absolutely has to.

Diversification is the spreading of your investments both among and within different asset classes. And rebalancing means making regular adjustments to ensure you're still hitting your target allocation over time.

The benefits of investing in I bonds

Suze Orman has long been a fan of these unique savings bonds because they offer so many benefits over other types of investments. For starters, they offer a guaranteed return on your investment, unlike stocks or mutual funds, which may go up or down over time.

Investment advisers say now is a fine time for bonds. They are a good investment in 2024, experts say, for the same reasons they felt like a bad investment in 2022. That year, the Federal Reserve embarked on a dramatic campaign of interest-rate hikes in response to inflation, which reached a 40-year high.

As of July 2024, there were 96 million matured unredeemed savings bonds held by investors. If bonds are held past their maturity date, the bonds can lose value due to inflation. To understand how this value is lost, see the illustration below.

Are corporate bonds safe in a recession? ›

But bonds have historically thrived when the economy has contracted. In every recession since 1950, bonds have delivered higher returns than stocks and cash. That's partly because the Federal Reserve and other central banks have often cut interest rates in hopes of stimulating economic activity during a recession.

Our overall outlook and guidance is mostly unchanged: Investment-grade corporate bonds remain attractive given their average yields of 5% or more.

Diversification Isn't as Important with Bonds

To put it simply, diversification doesn't play as vital of a role in the bond markets as it does with stocks. It would mostly help with Default Risk, and that's pretty easy to avoid on our own.

Bond Laddering in Passive Investing

Each maturity date represents a "rung" on the ladder, which is the investor's entire time horizon. As the bonds reach maturity, the proceeds are reinvested at the currently available rate. This strategy reduces the impact of fluctuation in bond rates.

There are two ways that investors make money from bonds. The individual investor buys bonds directly, with the aim of holding them until they mature in order to profit from the interest they earn. They may also buy into a bond mutual fund or a bond exchange-traded fund (ETF).

There are two ways to make money on bonds: through interest payments and selling a bond for more than you paid. With most bonds, you'll get regular interest payments while you hold the bond. Most bonds have a fixed interest rate.