Bonds do not have the same appeal as stocks. Bonds cannot match stocks during busy bull markets where it seems like each and every stock is skyrocketing in price. Instead, bonds offer a small percentage of gain over the course of a great while. But when a bear market comes along, bonds suddenly become very important. Why is this?
When you buy a bond, the company is basically borrowing money from you, thus making a bond a debt instrument rather than a partial ownership in the company like stocks are. But even though bonds don’t have the same magnificent returns as stocks or binary options the bond market offers slow and steady gains. Think of it like the parable of the tortoise and the hare. The stocks are like the hare, they have the potential to go up quickly, but they also have quite a bit of risk as well. Like the hare tiring and thinking he has plenty of time to catch up, stocks can drop in price and leave you with a large deficit.
The bonds are like the tortoise, then. They have the ability to outpace stocks in poor market times simply because they are a safer investment. Bonds will increase steadily in value at a very slow rate—this makes bonds a must for your portfolio. While they might not need the active management that stocks require, a good portfolio of bonds can be a good investment for longer range financial plans. Even though they aren’t exciting, they can help you a great deal.