SECTION IV: INVESTMENTS

Advantages & Disadvantages of Individual Bonds

Like every other investment, bonds have both advantages and disadvantages. Bonds are typically bought for income and to add stability to a portfolio. In addition, some bonds, such as municipal bonds, are exempt from federal income taxes.

Disadvantages of bonds include lower returns than stocks over the long-term and prices that can be volatile due to market interest rates. Also, bonds offer no hedge against inflation because inflation causes interest rates to rise, which in turn causes bond prices to fall.

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