You become the lender.

What is a bond?

When a company, city, or government needs to borrow money, it'll sell bonds to people like you. For example, a city may sell bonds to raise money to build a bridge, while the federal government issues bonds to finance its debts or projects. Bonds come with a maturity date (e.g. 6 months, 10 years) that the repayments will be completed by.

Lightbulb Bond prices move in the opposite direction of interest rates. When rates rise, bonds fall. And vice versa.

How can bonds
fit into your plan?

Bonds are a popular go-to for investors who find the stock market too volatile. Bond fluctuations are generally less severe than stocks, and bonds can move in the opposite direction from stocks over shorter periods of time. Bonds are a good way to diversify a stock portfolio and minimize the negative impact of a stock market downturn. With investments in bonds as well as stocks, your portfolio isn't as vulnerable to the movements of the stock market.

But bonds are not a risk-free investment. There's the chance you won't get paid back (credit risk or default risk); the possibility of a decline in the bond market (market risk); the chance interest rates will rise, causing your lower-rate bond to be less appealing (interest rate risk); and the chance that your bond won't keep pace with inflation (inflation risk). Your Northwestern Mutual advisor can help you decide the best role for bonds in your portfolio.

Graph of bond price compared to interest rate

Woman reading tablet in bed

Who are bonds for?

Bonds are great for investors looking to diversify a stock portfolio as well as
investors wanting an additional income source in retirement. By investing in
bonds as well as stocks, investors can
lessen their vulnerability to the whims
of the stock market.

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