Many investors view bonds as stocks’ poorer cousins. Their prices rarely rise or fall. They generally offer a lower return and, apart from a glamorous appearance in the 1980s thriller, Die hard— they are not part of popular culture in the same way that, say, Stoppage of play Or Tesla actions. However, they constitute an essential element of any good management. walletand with the stock market watching particularly sparklingthis is perhaps more true than ever.
On the surface, bonds are simple: an investor lends money to a government or company and gets a guaranteed return with interest over a specified period of time. But compared to what they know about stocks, many investors are less sure which bonds to buy, or how to buy or value them. Fortune I spoke with three experts who explained some of the basics of bonds, but also shared some lesser-known ideas.
“The shock absorber”
In 2025, owners of Nvidia shares enjoyed a gain of about 39% – not quite the eye-popping 171% jump over the stock in 2024, but a very good one back still. Holders of the popular 10-year Treasury note were satisfied with an annual rate of around 4.5%. This illustration highlights the modest returns that come with bond investing, but it doesn’t reflect years like 2008 and 2020, where the stock market fell about 38% and 19% respectively, while bonds reliably generated positive single-digit returns.
“Bonds are the shock absorber of the portfolio,” says Allan Roth, former McKinsey consultant and founder of Wealth Logic, whose slogan is “Dare to be boring.” Roth recommends that every investor own bonds and, in particular, Treasury inflation-protected securities, or TIPS, whose payments fluctuate with the consumer price index to stay ahead of inflation.
Another advantage: there is a clear correlation between the interest rate, or “coupon,” of a bond and the strength of the borrower: the higher the perceived risk of default, the higher the rate. Richard Carter, vice president of fixed income products at Fidelity, notes that bonds have the added benefit of being predictable. “You know when the coupon will be paid and when the bond will be redeemed. It’s everlasting and attractive, especially for older people looking for income.”
The bonds are not entirely predictableOf course. Their prices can fall if the issuer’s finances weaken, creating problems for those who wish to sell before the term expires. If the issuer becomes insolvent, investors risk losing their capital. And then there are black swan years like 2022, where bonds had their worst year due to a sudden rise in inflation that eclipsed the nominal interest rate of most bonds. (It should be noted, however, that stocks performed even worse that year.)
Most bonds, like stocks, are very liquid and easy to buy. Investors can use brokerage platforms like Fidelity and Schwab to purchase bonds in the primary or secondary market for low or no fees. They can also purchase ETFs with very low fees that invest in a mix of bonds, while those seeking higher returns may consider a more actively managed fund.
Which bonds to buy?
Despite recent concern that US debt levels are becoming unsustainableBond experts emphasize that Treasuries remain solid investments and should be the cornerstone of any bond portfolio. Even though yields on 10-year Treasury notes have fallen below the 5% or more offered two years ago, they remain comfortably above inflation.
Wealth Logic’s Roth advises investors to buy short- and medium-duration Treasuries. Kathy Jones, chief fixed-income strategist at Schwab, endorses the popular “laddering” strategy, which involves buying bonds that mature at different times to protect the investor against rate fluctuations.
Treasuries also offer an advantage that dividend stocks don’t: Their returns are not subject to local or state income taxes. This makes them particularly attractive to residents of high-tax states like New York and California. And income from municipal bonds, or “munis,” issued by cities and other local governments are often exempt from federal income taxes as well. For those looking to calculate the value of those savings, Fidelity and others offer online calculators that allow users to see how the tax-advantaged return compares to other fixed-income products.
While investors may be hesitant about holding bonds from basket cases like Chicago or the state of Illinois, Jones says defaults are almost unheard of, since government entities don’t go bankrupt. Investors’ biggest concern is that advertised returns for munis can be misleading. As Roth explains, brokerages that sell munis can exploit a regulatory loophole that allows them to tout too-good-to-be-true rates that reflect a portion of an investor’s initial capital when calculating a muni’s total return. Result: the promised annual return of 6% could turn out to be closer to 4%.
Finally, there are corporate bonds. Those looking for safe and secure returns can buy bonds from companies rated BBB or higher, or from a fund that includes them in a broader portfolio; those with a greater appetite for risk can invest in higher yielding but lower quality “junk” bonds.
Jones said it’s a particularly good time to consider corporate bonds because corporate profits have been particularly strong. The cautious Roth cautions, however, that businesses can be prone to sudden reversals of fortune. “I remember when GM was ‘safe like America,’” he recalls, before declaring bankruptcy in 2009 during the financial crisis. He says investors should resist the temptation to chase extra returns: “Make bonds the most boring part of your portfolio.” »
Three basic bond tranches
Bonds can be the ultimate safety net in a portfolio, providing reliable returns in good times and bad. But which bonds to buy? To play it safe, it is best to choose bonds with a credit rating of BBB or better. Here are three popular options:
Treasury bills: The ultimate safe investment, the popular 10-year Treasury typically offers returns significantly above the rate of inflation, while offering the added benefit of being exempt from state and local income taxes. An even better choice might be TIPS, Treasury bonds that offer a guaranteed rate above inflation.
Municipal bonds: Munis can offer a higher yield than Treasury bonds, while offering a particularly attractive advantage: they are not taxable at the state or federal level. But be careful with the prices announced by brokerage houses which can often exaggerate the real return (see main article).
Corporate bonds: For many investors, like Microsoft (rated AAA) and Apple (rated AA+) appear more financially solid than many governments; their bonds also often offer higher yields than those of “sovereigns”. But be careful: unlike governments, any company can go bankrupt.
This article appears in the February/March 2026 question of Fortune with the title “Learning to Love Connections”.
