If you have a financial adviser, you are likely to be invested in one or more bond funds. And if you haven’t but are trying to run a balanced portfolio, you may also be invested in bonds through a fund.
Bonds are the classic “defensive” asset. Backed by Governments or “blue-chip” corporates, paying secure and reliable income, and with a low risk of capital loss. In multi-asset class portfolios, they are typically negatively correlated to growth assets such as shares or property. That means that their price goes the opposite way to what is happening in the share market – so if shares tank, bond prices will rise. When added in combination with shares and property, a portfolio can be modelled that provides the best possible return for the lowest level of risk.
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