Bonds

What
They are also known as fixed-income instruments. Issuing a bond is one option for a firm to borrow money from individual investors. It is a debt security where the issuer typically offers regular interest payouts and s obliged to repay bond holders the principal at maturity. As such, they have priority over shareholders on the company's assets in times of liquidation.

Unlike money market funds, bonds have maturities that exceed 12 months from the date of issue.

Pros
With a range of potential returns from 2 to 5 per cent, bonds give a higher yield than bank deposits and money market funds. They provide regular fixed interest income.

Cons
The returns may not keep pace with inflation. Bonds are also subject to default risk of the issuer.

Best for
As they are considered a relatively safe and low-risk instrument, bonds can help bring stability to an investor's portfolio. The portion of bond in a portfolio is dependent on the investor's risk profile. The lower the risk appetite, the higher the percentage of bonds in the portfolio and vice versa. It is common for retirees to hold a higher percentage of bonds in their portfolios.