Should I invest in bonds?
In one paragraph
Bonds belong in most portfolios as a stabilizer, but the appropriate allocation depends heavily on time horizon and risk tolerance — younger investors with decades ahead can hold very little; those within 10 years of drawing down assets should hold more.
What this actually means
Bonds are not exciting. They don't compound at equity-like rates. In bull markets, they drag on returns. But they serve a specific function that equities cannot: they dampen volatility, provide income, and give investors something to rebalance from when stocks decline sharply. That function becomes more valuable as time horizons shorten.
The classic argument for bonds rests on their low correlation with equities. When stocks fell 50% in 2008–2009, high-quality Treasury bonds gained value. That negative correlation gave disciplined investors the ability to rebalance — selling bonds to buy stocks at depressed prices — which improved long-run returns. A portfolio of 100% equities offers no such rebalancing mechanism during a crash.
The counterargument for young investors is straightforward. A 25-year-old contributing to a retirement account has 40 years before meaningful withdrawals. Over that horizon, the equity risk premium has historically compensated for volatility. Holding bonds in that context reduces expected terminal wealth to buy protection against drawdowns the investor may not need to worry about.
Age-based rules of thumb — hold your age in bonds, or 110 minus your age in stocks — are simplifications, but they capture the right directional logic: bond allocation should increase as the time horizon shortens and the consequence of a prolonged drawdown becomes more severe.
Credit quality matters as much as allocation. U.S. Treasury bonds and high-grade corporate bonds provide true diversification from equity risk. High-yield ("junk") bonds correlate much more closely with stocks during downturns and don't provide the same ballast.
Jeremy Siegel's Stocks for the Long Run provides the most thorough historical analysis of stock and bond returns across two centuries of market data, making a compelling case for equity dominance over long periods while acknowledging the role bonds play in risk management. The Simple Path to Wealth by JL Collins covers bond allocation in practical, accessible terms.