5 Reasons to Include Long-Term Bonds in Your Portfolio

Investing in long-term bonds gives investors the opportunity to balance their investment portfolios with a component providing security and steady returns. This is because long-term bonds with maturities of 10 years or more offer regular interest income over an extended period of time. For those nearing retirement or seeking stability, the predictability of long-term bonds can be especially appealing. However, long-term bonds are not just for safety and stability. There are a variety of reasons why to invest in long-term bonds for your future.

If you’re considering long-term bonds for your portfolio, a financial advisor can help you identify opportunities based on your needs and goals.

What Are Long-Term Bonds?

Long-term bonds are fixed-income debt securities issued by corporations, municipalities or governments. They have a maturity date set far into the future, usually 10 years or more.

When you buy a long-term bond, you are lending money to the issuer in exchange for regular interest payments, known as coupon payments, until the bond matures. At maturity, the issuer repays the bond’s face value, which is also known as the principal.

The extended duration of long-term bonds can make them more sensitive to changes in interest rates, especially when compared to short-term bonds. However, they often offer higher interest rates to compensate for the added risk of a longer holding period.

In a well-diversified portfolio, investing in bonds can provide a steady income stream while acting as a stabilizing force during periods of market volatility.

5 Reasons to Include Long-Term Bonds in Your Portfolio

When considering why to invest in long-term bonds, there are a few specific advantages to explore.

Steady Income

Long-term bonds provide regular interest payments, producing a reliable income stream. The predictability of these payments can appeal to retirees or other investors looking for consistent cash flow.

It can also help you manage their finances more effectively, since you can count on receiving fixed amounts at regular intervals.

Diversification

Adding long-term bonds to your portfolio can enhance diversification, thereby helping to reduce your overall risk. Bonds generally have an inverse relationship with stocks, meaning that when stock prices fall, bond prices tend to rise.

Bond holdings can help cushion your portfolio against market downturns and provide stability when equity markets experience volatility.

Capital Preservation

Long-term bonds are typically considered lower risk when compared with stocks, making them an attractive option for conservative investors focused on preserving capital.

The value of bonds can fluctuate with interest rates, so if you sell a bond before maturity, you could lose money. However, you will receive the full principal if you wait until its maturity, provided the issuer does not default.

This makes long-term bonds a safer investment for those seeking to protect their initial investment.

Potential for Higher Returns

Compared with short-term bonds, long-term bonds often offer higher interest rates, compensating investors for the longer holding period. For those willing to accept the interest rate risk, long-term bonds can provide better returns than their short-term counterparts, especially in a stable or declining interest rate environment.

Inflation Protection

Some long-term bonds offer protection against inflation.

One example is Treasury Inflation-Protected Securities (TIPS). They are adjusted for inflation, ensuring that the purchasing power of your investment is maintained over time. This can be particularly beneficial during periods of rising inflation.

How to Add Long-Term Bonds to Your Portfolio

An investor adding long-term bonds to her portfolio.

There are a few steps to add long-term bonds to your portfolio.

Calculate Your Asset Allocation

Before you add long-term bonds to your portfolio, determine the appropriate allocation that is right for you. This should be based on three factors:

If you are close to retirement or prefer a conservative approach, for example, you might allocate a larger portion of your portfolio to long-term bonds than someone younger who is better able to take risks.

Select the Right Bonds

Next, you need to choose the types of bonds that best fit your needs.

Government bonds. Government bonds, such as U.S. Treasuries, are generally considered the safest.
Corporate bonds. Corporate bonds offer higher yields, but come with greater risk.
Municipal bonds. Municipal bonds can provide tax advantages, especially for investors in higher tax brackets.

Because bond funds pool investments from multiple investors to buy a variety of bonds, they can carry less risk than holding a single bond.

You can invest in long-term bonds directly by purchasing individual bonds through a brokerage account, or you can opt for bond funds, including bond mutual funds or exchange-traded funds (ETFs), that focus on long-term bonds.

Research Interest Rates

When adding long-term bonds to your portfolio, consider the impact of interest rate changes on bond prices. Since long-term bonds are more sensitive to interest rate fluctuations, a rise in interest rates could lead to a decline in the market value of your bonds.

Long-Term Bonds vs. Short- and Intermediate-Term Bonds

When building a fixed-income portfolio, it helps to understand how different bond durations compare in terms of yield, risk and investment suitability. While long-term bonds offer the appeal of higher yields and predictability, they are just one option among several.

This is a look at how short-, intermediate- and long-term bonds stack up.

Bond Type	Duration Range	Typical Yield	Interest Rate Sensitivity	When to Consider
Short-Term Bonds	1 to 3 years	Lowest	Low	For liquidity needs, short time horizons or rate hikes
Intermediate-Term Bonds	3 to 10 years	Moderate	Moderate	For balanced income and risk; mid-term financial goals
Long-Term Bonds	10+ years	Highest	High	For income and stability in retirement or long-term goals

For example, a retiree seeking predictable income might allocate more to long-term government or municipal bonds. Meanwhile, a mid-career professional saving for a child’s college fund in eight years may favor intermediate-term bonds. On the other hand, someone saving for a home within two years may prefer short-term bonds or bond funds to maintain liquidity with minimal risk.

Laddering Strategies With Long-Term Bonds

A bond ladder is a strategy in which you purchase bonds with staggered maturity dates. Instead of putting all your funds into one long-term bond, you divide your investment across bonds maturing at regular intervals, such as every two, five, 10 and 15 years. As each bond matures, you can reinvest the proceeds into a new bond at the far end of the ladder, potentially at a higher rate.

Here’s how it works: Imagine investing $100,000 evenly across five bonds that mature every two years from now through year 10. As the first bond matures in two years, you reinvest that principal in a new 10-year bond. Over time, this creates a rolling cycle of maturing bonds that helps manage interest rate risk and ensures ongoing access to cash.

There are several benefits of laddering.

Reduces reinvestment risk. You are not locked into one single rate.
Manages interest rate sensitivity. You blend exposure across different maturities.
Ensures liquidity. With bonds maturing regularly, it will free up capital that you can access if needed.

Laddering can be especially useful for retirees who rely on predictable income. However, it can also benefit conservative investors who want fixed returns without timing the market.

This strategy brings more control to your bond investments, making it easier to balance income, flexibility and risk tolerance.

Bottom Line

Long-term bonds can be a valuable addition to your investment portfolio, offering steady income, diversification and capital preservation. They can also enhance your portfolio’s stability while helping you achieve your long-term financial goals. Whether you are seeking to protect your capital, generate income or diversify your investments, long-term bonds can play an important role in your overall strategy.

Consider asking a financial advisor about long-term bonds and whether a laddering strategy may work for you based on your short-term and long-term goals.

Tips for Investing

A financial advisor can help you analyze investments and manage your portfolio. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
TreasuryDirect is a U.S. government online marketplace that allows you to buy bonds without a middleman. SmartAsset’s guide to using TreasuryDirect provides step-by-step directions to investing through the marketplace.