When it comes to investments, a person often thinks about stocks. But there is another important tool — bonds, which offer unique advantages. Why these securities deserve attention and what role they play in a well-thought-out investment portfolio? This article will tell you. You will learn why investors need bonds, how they work, and how to invest in them correctly.
What are bonds and why do investors need them
Bonds are debt securities on which the issuer undertakes to pay a fixed coupon and return the principal on the maturity date. Unlike stocks, they do not represent ownership in the company but guarantee a cash flow, often independent of market turbulence.
In practice, both corporations and governments use such instruments. For example, the issuance of OFZ bonds in the amount of 1 trillion rubles in 2023 allowed the Ministry of Finance to stabilize budgetary commitments. The corporate sector is also active: “Gazprom” and “Russian Railways” regularly place bonds ranging from 10 to 100 billion rubles.
These instruments are necessary for building a strategy in which the yield is known in advance, and the level of risk is controllable.
The advantages of bonds
Debt assets offer clear mathematics: coupon + principal = income. This approach removes speculative stress and makes the instrument ideal for long-term planning. Bond yields can reach 11–13% per annum with moderate risks — for example, in the high-yield bond segment.
The benefits of investing in bonds are particularly evident when compared to bank deposits. If a deposit is limited to a 13% rate and full dependence on the key rate, then an investment instrument can “surpass” this threshold through revaluation on the secondary market or bonuses from the issuer.
Also important: income from debt securities is not always subject to tax. For example, government securities with a fixed coupon are exempt from personal income tax if ownership conditions are met.
How to start investing in debt assets without mistakes
Investing in bonds for beginners requires precise selection. First of all, it is important to track three parameters: issuer rating, time to maturity, and coupon rate. The Russian market offers a wide range: from reliable OFZs to speculative high-yield bonds.
For a start, the following algorithm is suitable:
- Evaluate goals — capital preservation, passive income, or diversification.
- Study ratings from A and above.
- Select instruments with a short term — up to 3 years to minimize volatility.
- Check parameters: coupon, maturity date, early redemption conditions.
Why do investors need debt instruments at the beginning of their journey? To build a foundation and understand how the market works without sharp movements. It’s like learning to drive on automatic — simple, stable, without overload.
Building an investment portfolio
Fixed-income securities play a key role in asset allocation. In a typical balanced portfolio (for example, 60/40), bonds provide protection in a falling stock market. The reduction of the Central Bank’s rates increases their value, resulting in capital growth.
Building an investment portfolio without them is like constructing without a foundation. Even aggressive investors use them as stabilizers.
At the peak of the 2022 crisis, many private portfolios in Russia stayed afloat precisely because of government bonds. The decline in stocks was offset by the rising price of OFZ bonds maturing in 2024–2025.
Bonds are needed to balance risk and return. They should not only “offset” a decline but also provide a stable cash flow.
Yield, coupon, and terms
The yield of bonds depends on the type of security and the issuer. Government bonds are reliable but with a minimal rate: on average 7–9% per annum. Corporate bonds offer higher yields but require analysis. For example, bonds of “Sovcomflot” and “PhosAgro” yielded up to 12% with a BBB rating.
The coupon rate is a key parameter. It reflects the regular income paid every six months or quarterly. Debt instruments with amortization gradually repay the principal, reducing risks.
The maturity date also plays a role. Short-term bonds are less susceptible to fluctuations, while long-term bonds are more sensitive to rate changes. In 2024, valuable assets with maturity dates in 2026–2027 are of interest amid possible key rate cuts.
Risks, volatility, and how to deal with them
The financial market is not a chessboard with predictable moves but rather a dynamic stage where investing in securities requires an understanding not only of income but also of associated risks. They may appear more stable but are not free from fluctuations.
The main risks are:
- Credit — the issuer may default. For example, in 2020, several bond issuers experienced technical defaults due to cash shortfalls.
- Interest rate — when the key rate rises, the market revalues already issued securities, reducing their market value.
- Liquidity — not all assets can be quickly sold at a fair price, especially among small issuers.
However, bond volatility is significantly lower than that of stocks. Government bond assets rarely lose more than 5–7% per year, even in unstable conditions. This makes them a cornerstone of strategies with low and moderate risk levels.
Why do investors need debt instruments in this context? For hedging, risk control, and maintaining a stable cash flow, especially during periods of high turbulence in stock markets.
Why investors should invest in bonds
A comparison with banking instruments reveals one of the key reasons. With deposit rates around 11%, quality debt instruments can yield up to 13–14% without the need to lock funds for a year or more.
Stocks offer growth potential but also the risk of a 20–30% downturn in a crisis. Unlike stocks, bonds repay the principal and pay the coupon, maintaining a cash flow regardless of market fluctuations.
Of course, the approach depends on goals. For passive income, stability, and predictability, they appear more reliable. Especially when selecting securities based on term, coupon type, and issuer.
Why do investors need bonds when they have other assets? To create a multi-layered investment system where each category performs its task — from capital protection to profit growth.
Examples of strategies
Professional portfolios include various types of debt instruments. For example, a model with 60% OFZs and 40% corporate bonds showed a yield of 10.4% per annum in 2023 with a maximum drawdown of 2.1%. For comparison: a portfolio with 100% stocks during the same period yielded 14% but with declines of up to -17% at certain stages.
An example of a balanced strategy:
- 40% — OFZs maturing by 2026;
- 30% — investment-grade corporate debt instruments (e.g., “Norilsk Nickel,” “Sibur”);
- 20% — high-coupon high-yield bonds (15–17%) from reliable issuers;
- 10% — cash in rubles or short-term securities for flexibility.
Such a portfolio yields 10–12% with minimal drawdown. Diversification by sectors and terms allows for risk mitigation and volatility control.
Why do investors need these securities as part of a strategy? To distribute the load, reduce drawdowns, and increase result predictability — especially during periods of economic instability.
Why investors need bonds: the main thing
Why do investors need bonds? To create a stable foundation for long-term growth. They are not a replacement for stocks, not an alternative to deposits, but the third axis of the investment triangle: stability, income, and control.
Debt assets are not a temporary refuge. They are a working tool used by anyone who thinks in terms of years, not minutes.
Each system is suitable for specific purposes and risk levels. There are different basic methods that can be used to meet different needs.
Choosing the right investment strategy is the foundation for a successful future. Regardless of which approach you choose (long-term investing, active management or a dividend strategy), it is important to act consciously and understand your goals.
First you lay the groundwork: what do you want to achieve and over what period of time? Then you start choosing assets. Novice investors should avoid overly complex and risky instruments.
Regardless of your age and financial situation, you can always find the right strategy and start investing now. A retiree investment portfolio can include conservative instruments that allow you to preserve your savings and receive a stable income. The important thing is to take the first step and then follow the plan with confidence. Financial freedom starts with a small but steady effort.