26 Nov I’m not sure I understand risk for different bonds. Help?

Q. I’m a little confused about the bond part of my portfolio. I’m 64 and have 60% in equities. But for the 40% in bonds, I see opportunities for higher yield or riskier ones. But isn’t the point of the bond part to be more stable and not risky?
— Investor

A. We’re glad you asked.

Diversification is indeed a very important part of investing.

You should consider more than just stocks and bonds, said said Michael Cocco, a certified financial planner with Beacon Wealth Partners in Nutley.

There are many different types of bonds and bond funds, and they each carry their own type of risk, he said.

“The first step to knowing more about investing in bonds is to know that all types of bonds have some sort of risk, but sometimes it is a risk you may not be thinking of,” he said.

For example, high-yield corporate bonds may pay comparatively higher interest rates, but carry a high default risk and market risk, because of their volatility, Cocco said. Conversely, U.S. Treasury Bonds have virtually no market or credit risk, however, they are very sensitive to interest rates, so if interest rates move higher, Treasury Bonds fall in price, he said.

“If you look at short-term Treasury bills, they have little to no credit and market risk, and very little interest rate risk since they are shorter in maturity and duration, however, the yields they are paying may not be very high, so they are subject to inflation risk – the risk that you are not earning as much as the rate of inflation,” Cocco said.

Also, when using different types of bonds and bond funds in a well-diversified portfolio, knowing how certain types of bonds react in relation to stocks will help you ensure that your portfolio is truly well diversified, he said. You don’t want everything to move in the same direction, all the time, if you want true diversification, he said.

“It is very important to work with your financial advisor to have them educate you on the types of bonds you own, why you own them, and do you have diversification amongst your bonds and overall portfolio, so you are spreading around the different types of risk,” Cocco said.

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This story was originally published in November 2025.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.