Understanding Bonds and Their Role in Your Portfolio with Benjamin Bailey
Faith & Finance with Rob West
Bonds are considered safe investments but also a bit boring. Is that true, though? In the investing world, all the drama, for good or ill, is in the stock market. It’s up, it’s down, you get the picture. However, bonds also have an interesting story, and Benjamin Bailey is here to tell us about it. Benjamin Bailey is Vice President of Investments and Senior Fixed Income Manager at Praxis Mutual Funds, an underwriter of Faith & Finance.
Show Notes
Bonds are considered safe investments but also a bit boring. Is that true, though?
In the investing world, all the drama, for good or ill, is in the stock market. It’s up, it’s down, you get the picture. However, bonds also have an interesting story, and Benjamin Bailey is here to tell us about it.
Benjamin Bailey is Vice President of Investments and Senior Fixed Income Manager at Praxis Mutual Funds, an underwriter of Faith & Finance.Introduction to Bonds and Stocks
Bonds play a unique role in building a well-rounded investment portfolio compared to stocks. Stocks represent ownership in a company—owning a small piece of a business like Verizon or Lowe's. Investors typically buy stocks hoping for price appreciation, aiming to sell them for more than they paid.
Bonds, however, function differently. When a large company needs significant funding, they may issue bonds to raise capital, allowing investors to “lend” the company money. In return, bondholders receive interest payments (often bi-annually) and get their initial investment back when the bond matures. Bonds may not offer the same potential for big gains as stocks, but they tend to provide more stability.
Why Bonds Belong in a Diversified Portfolio
Bonds are often recommended as part of a diversified portfolio, especially as investors approach the time when they’ll need to withdraw funds. If you’re using a portfolio to fund your retirement or a significant life expense like college tuition, bonds help protect against sudden stock market dips. With time to weather market fluctuations, younger investors may not need as much exposure to bonds. Still, bonds add stability, allowing investors to rebalance effectively if stocks fall sharply.
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