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Why People Buy Bonds

Fundamentally, there are four reasons people buy bonds: income, safety, diversification, and tax advantages. Although not all bonds share all of these characteristics, if you polled bond owners, you would find these four listed most frequently. However, in reality, you will find through the course of this chapter that bond income is typically not inflation proof, bond safety is relative, and tax advantaged bonds must be analyzed with respect to taxable alternatives. This doesn't mean that bonds (or bond funds) are inappropriate investments—quite the contrary. They need to be part of a balanced portfolio, and you'll use them as we begin to match assets to goals.


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