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The behavioral case for bonds

How bonds can build a buffer that makes your portfolio more resilient, and you more likely to stay invested

By Josh Shrair

Investment Strategist, Betterment |

Published Mar. 06, 2026

The behavioral case for bonds Mar 6, 2026 10:03:14 AM How bonds can build a buffer that makes your portfolio more resilient, and you more likely to stay invested Key takeaways Bonds are loans investors make to companies, governments, and other entities in exchange for interest. Although their historical returns are lower than stocks, their relative stability makes them an ideal buffer during bouts of market volatility. Bonds can help investors stay in the game and preserve capital for the next market recovery. Betterment makes it simple to mix them into your portfolio now and adjust along the way. When most of us think about investing, we think about the flashy headlines of the stock market, the ups and downs of brand names and the companies behind them. Bonds, by contrast, can feel boring. But they’re often the unsung heroes of a well-balanced portfolio. They help smooth out your investing journey, making it more likely you stay in the wealth-building game. So, what exactly is a bond? At its simplest, a bond is a glorified loan, but one that you make, not the other way around. You’re lending your money to an entity (usually a company or government) for a set period, and in exchange, they promise to pay you back the full amount on a specific date, plus a little extra interest (aka “yield”) along the way. Bonds commonly break down along two lines: Investment-grade bonds — These are issued by less risky, more creditworthy entities and offer lower yields as a result. The U.S. government is one of the biggest players here—issuing tens of billions in Treasury bonds—but corporate bonds also play a role. High-yield bonds — Bonds issued by riskier, less creditworthy players (both corporate and government) and carrying higher yields in turn. These types of bonds are often under-represented in funds that track a pre-set list of bonds, meaning there’s more potential for higher returns with the right active management. For most of the 2010s, interest rates were stuck near zero, which meant bonds of all kinds weren't paying much. But the landscape has shifted since the pandemic. Since then, the "boring" part of your portfolio is actually working quite hard, offering yields that look a lot more attractive than they used to. Why bonds matter, regardless of your goal’s timeline If you’re in your 20s or 30s, you may think, “I’ve got 30 years to grow my money. Why not just go 100% stocks?” It’s not the craziest idea. Over longer periods, stocks generally outperform bonds. But investing isn't just a math problem; it's a psychology problem. The real danger to your wealth isn't a market dip—it's you hitting the "sell" button during a market dip because the choppy waters feel like too much to bear. Bonds can help calm the storm in this sense. When the stock market has a bad week (or a bad year), they tend to hold more of their value, or even gain in value. They also generally continue to pay out interest. This in theory means your overall portfolio experiences smaller dips, and it’s a lot easier to stay invested when your portfolio is down 15% instead of 30%. Bonds can also help preserve your portfolio’s precious capital, meaning there’s more fuel for the fire as stocks recover and grow beyond their pre-dip levels. This is why our allocation advice for even the longest of timelines still includes some bonds. Putting bonds into practice (and your portfolio) So how do you actually "do" bond investing without spending your weekends reading government balance sheets? You shouldn’t have to be an expert to benefit from a sophisticated bonds strategy. That’s why most of our portfolios include a globally-diversified mix of both stocks and bonds, with bond allocations that can automatically increase as your goal’s target date nears. You can also manually dial your amount of bonds up or down at any time—we’ll even preview the potential tax impact of the changes you’re considering. In certain cases, one of our bonds-only portfolios may make even more sense. For investors looking to generate income (e.g. retirees), for example, we offer the BlackRock Target Income portfolio. And for those with incomes falling in the 32% tax bracket or higher, we offer the Goldman Sachs Tax-Smart Bonds portfolio. It’s personalized based on customers’ unique tax situations and focuses on municipal bonds issued by state and local governments, which often offer tax-free interest at the federal level. The bottom line on bonds Bonds are rarely trendy, but their strong track record of stability can help cushion the chaos when market volatility hits next. Betterment’s lineup of stock and bond portfolios make it easy to mix some into your investing today, then adjust as you go. Because your right amount of bonds is whatever helps you stay invested.

Key takeaways

Bonds are loans investors make to companies, governments, and other entities in exchange for interest.
Although their historical returns are lower than stocks, their relative stability makes them an ideal buffer during bouts of market volatility.
Bonds can help investors stay in the game and preserve capital for the next market recovery.
Betterment makes it simple to mix them into your portfolio now and adjust along the way.

When most of us think about investing, we think about the flashy headlines of the stock market, the ups and downs of brand names and the companies behind them.

Bonds, by contrast, can feel boring. But they’re often the unsung heroes of a well-balanced portfolio. They help smooth out your investing journey, making it more likely you stay in the wealth-building game.

So, what exactly is a bond?

At its simplest, a bond is a glorified loan, but one that you make, not the other way around.

You’re lending your money to an entity (usually a company or government) for a set period, and in exchange, they promise to pay you back the full amount on a specific date, plus a little extra interest (aka “yield”) along the way.

Bonds commonly break down along two lines:

Investment-grade bonds — These are issued by less risky, more creditworthy entities and offer lower yields as a result. The U.S. government is one of the biggest players here—issuing tens of billions in Treasury bonds—but corporate bonds also play a role.
High-yield bonds — Bonds issued by riskier, less creditworthy players (both corporate and government) and carrying higher yields in turn. These types of bonds are often under-represented in funds that track a pre-set list of bonds, meaning there’s more potential for higher returns with the right active management.

For most of the 2010s, interest rates were stuck near zero, which meant bonds of all kinds weren't paying much. But the landscape has shifted since the pandemic. Since then, the "boring" part of your portfolio is actually working quite hard, offering yields that look a lot more attractive than they used to.

Why bonds matter, regardless of your goal’s timeline

If you’re in your 20s or 30s, you may think, “I’ve got 30 years to grow my money. Why not just go 100% stocks?”

It’s not the craziest idea. Over longer periods, stocks generally outperform bonds. But investing isn't just a math problem; it's a psychology problem. The real danger to your wealth isn't a market dip—it's you hitting the "sell" button during a market dip because the choppy waters feel like too much to bear.

An illustration of a boat navigating big waves. Bonds can help calm the storm in this sense. When the stock market has a bad week (or a bad year), they tend to hold more of their value, or even gain in value. They also generally continue to pay out interest. This in theory means your overall portfolio experiences smaller dips, and it’s a lot easier to stay invested when your portfolio is down 15% instead of 30%.

Bonds can also help preserve your portfolio’s precious capital, meaning there’s more fuel for the fire as stocks recover and grow beyond their pre-dip levels. This is why our allocation advice for even the longest of timelines still includes some bonds.

Putting bonds into practice (and your portfolio)

So how do you actually "do" bond investing without spending your weekends reading government balance sheets?

You shouldn’t have to be an expert to benefit from a sophisticated bonds strategy. That’s why most of our portfolios include a globally-diversified mix of both stocks and bonds, with bond allocations that can automatically increase as your goal’s target date nears. You can also manually dial your amount of bonds up or down at any time—we’ll even preview the potential tax impact of the changes you’re considering.

An illustration of Betterment's asset allocation slider. In certain cases, one of our bonds-only portfolios may make even more sense. For investors looking to generate income (e.g. retirees), for example, we offer the BlackRock Target Income portfolio.

And for those with incomes falling in the 32% tax bracket or higher, we offer the Goldman Sachs Tax-Smart Bonds portfolio. It’s personalized based on customers’ unique tax situations and focuses on municipal bonds issued by state and local governments, which often offer tax-free interest at the federal level.

The bottom line on bonds

Bonds are rarely trendy, but their strong track record of stability can help cushion the chaos when market volatility hits next. Betterment’s lineup of stock and bond portfolios make it easy to mix some into your investing today, then adjust as you go. Because your right amount of bonds is whatever helps you stay invested.

Add a little buffer with bonds.