Bond basics guide

When you buy a bond, you’re not owning a company; you’re lending money to one. Think of it like this: stocks make you a part-owner, but bonds make you a lender. And just like any loan, you earn interest in return. Bonds are a key part of a balanced portfolio, especially when you want less drama from market ups and downs.

What is a bond?

• A bond is a loan you give to a company or government.
• In return, they pay you interest (called a coupon) at regular intervals.
• At the end of the bond’s term, you get back the original amount you ‘loaned’ (called the principal).

Types of bonds you’ll see in Singapore:

1. Singapore Savings Bonds (SSBs):
   • Low-risk, backed by the Singapore government
   • Pay interest every 6 months for up to 10 years
   • Capital is guaranteed, so you won’t lose money
2. Corporate bonds:
   • Issued by companies (e.g., banks, property firms)
   • Higher interest than SSBs, but more risk if the company struggles
3. Bond ETFs or Unit Trusts:
   • Spread your money across many bonds in one go
   • Easier to access for beginners via robo-advisors or RSPs

Bond-terms

A bond term is how long the bond lasts. Basically, how long the borrower (like a company or government) keeps your money before paying you back in full.

1. Short-term bonds (1-3 years): Lower returns, but you get your money back sooner.
2. Medium-term bonds (4-10 years): A balance between return and flexibility.
3. Long-term bonds (10-30 years): Higher interest, but your money is tied up longer.

Why bonds matter in your portfolio:

• They offer stable returns and lower volatility compared to stocks
• Good for balancing risk, especially during market downturns
• Helpful for short-term goals or income-focused investing

For more information on bonds and whether they’re suitable for you, visit https://www.moneysense.gov.sg/understanding-bonds/.