As an investment, bonds are both underrated and misunderstood. They are often seen by investors as boring, defensive, somewhat predictable and producing very little in the way of income.
In short, they hold little interest to income-focused investors, especially when interest rates are low and the sharemarket is rising. Why lock yourself into a fixed-interest investment when shares are delivering a healthy dividend, with potentially solid capital gains?
However, bonds can be an important part of a well-balanced portfolio, particularly during uncertain times, when sharemarkets and property markets often get the jitters.
Look at the September quarter. During those three months, the S&P/ASX 200 fell 2.1%, the Dow Jones slipped 2.6%, the S&P500 fell 3.6% and the Nasdaq dropped 4.1%. In times like this, an investment producing, say, a 5% annual return with a guaranteed return of capital all of
