A case for the defence
High-quality bonds are arguably the leading defensive asset for retail investors, lauded for their capital preservation qualities. But what exactly are they, how do you buy them and what role do they play in a portfolio?
Bond machinations can be complicated. In one sense they’re quite simple, but dig a little deeper and you’ll find a pretty big rabbit hole to fall down.
Bonds are essentially loan contracts issued by either governments or companies. You lend them money and in exchange you receive a coupon payment (yield), usually once or twice a year. At the end of the agreed term, the initial loan amount (face value) of the bond will be repaid to the bond holder – provided the issuer is solvent.
Australian government bonds are AAA-rated – the
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