Bonds may be boring, but they can help reduce portfolio risk, smooth returns and keep investors on track through market swings.
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If you’re new to investing, chances are your portfolio is mostly shares.. With maybe a sprinkle of crypto
Bonds? Probably not getting much airtime.
And fair enough - it’s not the asset class that’s sparking conversations at a dinner party.
But ignoring bonds altogether might be a mistake that could be leaving your portfolio more exposed than you realise.
Over the past few years, investors have often been rewarded for chasing growth - whether that’s booming tech stocks or double-digit swings in crypto.
And when you see tech stocks grow by 30% year on year, it can start to rewire your expectations for how investments should perform.
So suddenly, anything that doesn’t move fast (or make headlines) feels like a waste of time.
This is called recency bias. It’s the tendency for investors to overemphasise recent events when estimating future returns.
But only building a portfolio around what’s recently worked (or what’s most exciting) can mean you’re potentially overexposed to relatively risky investments.
Bonds don’t 10x overnight and they don’t trend on TikTok… but that’s kind of the point. Bonds are designed to be more stable than shares.
They can provide income, reduce volatility and help smooth out the overall ride of your portfolio.
The same reason they get dismissed - because they’re “boring”- is exactly what makes them so reliable when equity markets start to dip.
Graph: 10 year historical performance of S&P 500 vs Total Return Bond Index
Source: Long term trends
Over the past 10 years, US stocks have grown undeniably fast. But there have also been moments of crisis, where the stock market value drastically drops overnight.
Of course, past performance is not a reliable indicator of future performance. But, relative to stocks, the value of bonds has remained pretty steady over the years.
When you look at equities and bonds side by side, you can start to see how these defensive assets keep investment portfolios grounded when market conditions shift.
None of this means you need to suddenly load up on bonds or ditch growth assets altogether. But completely ignoring them can come at a cost.
A portfolio without bonds might look great in strong markets, but it can be harder to hold when conditions change.
And in investing, consistency often matters more than chasing the highest returns.
For some investors, adding a bond allocation to a portfolio has historically helped to:
Franklin Templeton offers a range of fixed income strategies, each a diversified basket of bonds, covering different focuses including diversification, income and total returns.
Their fixed income ETFs may suit investors looking to add bond exposure to a broader portfolio.
Find out more about Franklin Templeton’s fixed income capabilities
Bonds probably won’t make headlines, and they won’t deliver the biggest wins.
But they might be the reason you stick with your strategy when things get uncomfortable - and that discipline is often key to building wealth over time.
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