Bonds, T-bills and cash: the boring part that does the heavy lifting

By The Investing Fox · General information, not investment advice

Before the exciting parts of a portfolio there is the base: cash you can reach and bonds that pay a known amount. They rarely make headlines, but they decide how calm you stay when markets fall.

The main options

• High-yield savings accounts. Bank deposits paying interest, usually protected up to a limit by a government deposit-guarantee scheme. Rates move with central-bank rates.
• Money-market funds. Funds holding very short-term, high-quality debt. Many brokers let you hold uninvested cash in one, from a few dollars.
• Treasury bills and government bonds. Loans to a government. Bills mature within a year; bonds can run for decades. In the US they can be bought directly from the Treasury or through a broker.
• Bond ETFs. A basket of bonds in one fund, from short-term government debt to corporate and high-yield bonds.

What to check

• Yield and fees: what you actually earn after costs and, for savings, any conditions on the rate.
• Duration: the longer a bond runs, the more its price falls when interest rates rise.
• Credit quality: government and high-grade corporate debt versus "high-yield" bonds that pay more because they default more.
• Taxes: interest is often taxed differently from gains, and some government bonds have special treatment.

The catch

Cash and short-term bonds protect you from big drops but usually grow more slowly than stocks over long periods, and inflation can quietly eat real returns. Long-term bonds can also fall in value when rates rise.