Bonds are not the same as cash
Bonds are loans issued by governments or companies. Pension funds often use them to add income, diversification or stability alongside shares.
They are usually seen as lower risk than shares, but they can still fall in value. Interest rate changes, inflation and credit risk can all affect bond prices.
In a mixed pension fund, bonds may help reduce the size of falls when share markets are weak. But they will not remove risk completely, and in some periods bonds and shares can fall together.
The role of bonds depends on the fund. Some bond funds are cautious. Others take more risk by investing in longer-term or lower-quality bonds.
What to check
- How much of the fund is invested in bonds?
- Are they government or corporate bonds?
- Is the bond fund short, medium or long duration?
- What risk rating does the fund have?
- Does the bond allocation fit your timeline?