Bond Investing at Every Age


Bonds can be useful investment tools, no matter how old you are. A healthy financial portfolio includes a mix of stable and risky investments. When the market is shaky, certain bonds can provide a buffer against volatility.

How you use bonds in your investment portfolio will change over time as you near and enter retirement.

Here’s how bonds can work for investors at different points of their lives:

Gifts for Kids
U.S. savings bonds are an easy way to save for a child’s college education. Series EE and Series I savings bonds have tax benefits when used toward education expenses. These investments are safe from market changes and backed by the government. They are also protected if lost, stolen or destroyed.

Starting Out
In your 20s, you have a long investment horizon and can afford to assume a high level of risk in your investment portfolio. There are higher-risk bonds (often called junk bonds) with high yields that you can purchase. Bonds can also be used as a savings vehicle when timed for large purchases. If you have a lump sum of money from an inheritance or settlement you want to draw off without touching the principal, a bond investment can be a good choice.

The 30s and 40s
At this time in your life, you can still afford some risky investments, but that risk needs to be more balanced in case the market faces a serious decline. Look into zero coupon bond investments, which are sold at a big discount from their face value. You can time their maturity with your child going to college or your planned retirement.

Almost Retired
With your investment horizon shrinking, so is your risk tolerance. If you have planned wisely in the last couple decades, you have probably accumulated a retirement portfolio. Now is the time to protect that money. Some advisors recommend converting 50% or more of your portfolio into bond investing. Tax-advantaged bonds issued by the government are an attractive option if you’re in a high tax bracket. Municipal bonds are exempt from most taxes.

The Golden Years
Now that you’re retired, your goal it to preserve as much of your savings as possible. Your risk tolerance is low, so high-yield/high-risk bonds are not the best. With a balanced bond fund you can use a percentage of your earnings as income while still allowing the capital to grow to hedge against inflation.


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