Global bond index: everything you need to know about bonds

Think about your friendship group. Is there a crazy one, a flaky one, a ‘mom’? Your mom friend is a supportive influence in your life, your rock, your port in a storm. The bond that you share keeps you steady.   

When it comes to financial management a global bond index acts like your mom bestie by keeping your portfolio steady. Stocks are the party friend, the one who wants to get lit on a Wednesday and call in sick on a Thursday. Crypto is the flaky friend, sometimes showing up with hot gossip and bringing the vibes, sometimes bailing entirely, leaving you feeling disrespected. Bonds keep you grounded and make sure you don’t lose all your money downing shots and leaving your bag in the taxi.   

What is a global bond index?   

Essentially a bond is a loan. When you buy a bond, you are basically lending money to a company or the government. In return, they promise to pay you back the borrowed money with a little extra (interest) after a certain period.  

But I don’t know which companies want me to lend them money?   

This is where a bond index comes into play. A bond index is like a giant list that keeps track of different bonds. Imagine you have this list that includes lots of different bonds from various companies or governments. The bond index simply shows how well all these different bonds are doing as a group. It’s like looking at the average performance of all the bonds on the list.   

So, if the bond index goes up, it means that, on average, the bonds on the list are doing well. People often use bond indices to get an idea of how the overall bond market is performing without having to look at each bond individually. It’s a handy tool to keep an eye on the big picture of the bond world.  

And what if the bonds aren’t doing well? Will I lose money?  

If you weren’t doing financially well, would the bank lose money? Absolutely not. They would reclaim any money you owed them to ensure their own security.   

When you put your money into a bond index, you are acting as a bank. Even if a company or government is facing financial challenges, you as a bondholder, have a higher claim on assets than stockholders do. This means if a company goes into liquidation, they have to repay their bondholders before their stockholders. You will receive the fixed amount of interest that was agreed upon at the start of the bond.

Of course, all investments carry some risk and economic downturn may impact how much you make on a bond. But you will still receive your initial investment and some interest back at the end of the term.   

Why should I bother with stocks at all if bonds are so secure then?  

Your mom friend is an amazing influence and your friendship group would be nothing without her. But wouldn’t you feel a little…constrained if she was your only friend? A healthy friendship group includes a mix of personalities, and a healthy portfolio needs that same balance. Stocks are the growth factor in your portfolio. When you buy stocks, you become a partial owner in a company or group of companies. If the company/companies grow and become more profitable, the value of your stocks will increase with no fixed limitations.   

At Fearless Girl Finance, we use a moderate approach to building a portfolio. ETFs are as safe as it gets in terms of stocks and here at FGF, they make up around 60% of our portfolio. Balance out your risk by placing the rest of your investment money into a global bond. iShares by BlackRock Group is a low-fee global bond index that spreads your money as widely as possible for both maximum security and a good return.   

Make bonds a part of your financial toolkit for long-term success, and you will enjoy a sense of security through even the worst market crashes. And when you’ve done that, text your mom bestie to tell them how grateful you are for their steady support.   

 Will you be securing your future by investing in a global bond index? Let us know in the comments or tag us on Instagram @fearlessgirlfinance_