When people talk about growing their super, shares usually steal the spotlight. But super portfolios can include different types of assets to help you build your retirement savings.

One of those asset types is bonds , which can quietly play a big role in investing for your future retirement. Bonds are often used to help stabilise a portfolio, especially as retirement approaches. That’s why they’re a common feature in many super strategies.

Here’s how bonds work, why people include them in super, the pros and cons, and how they can be added to a super portfolio.

How superannuation works in Australia

Superannuation is a system that helps Australians save for retirement over the course of their working lives. It’s designed to grow steadily over decades.

By law, employers must contribute a portion of an employee's income to their designated super fund, known as the super guarantee . You can also top it up with personal contributions if you choose to.

Super isn’t just a savings account. The money is invested in assets like shares, property, bonds, and cash. Each fund offers different investment options, often with varying levels of risk and return.

You usually can’t access your super until you reach a certain age or meet specific conditions. Because it’s invested for the long term, your super has the potential to grow through compounding , where returns generate more returns over time.

As mentioned, among the different asset types used in super , bonds are often included for their stability. But what exactly are they, and how do they work? Let’s explore that now.

What are bonds?

Bonds are a way for governments or companies to borrow money from investors. When you buy a bond, you’re lending money in exchange for regular interest payments and the return of your original amount later on. This is different from buying shares . With shares, you own part of a company. With bonds, you're simply acting as a lender.

There are two common types of bonds:

• Government bonds , which involve lending to a federal or state government.
• Corporate bonds , which involve lending to a company.

Bonds are typically considered less risky than shares, but they don’t guarantee returns or protect against every market condition. Bond values can change due to interest rate movements, economic conditions, or the borrower’s ability to repay the loan.

What are the potential benefits of including bonds in a super portfolio?

Bonds can play a supportive role in a super portfolio, especially when the goal is to manage risk and create balance. Here’s how they might help.

Income through regular interest payments

Most bonds pay interest to investors at regular intervals, usually every six months. This payment is often called a “coupon”.

While super is generally a long-term investment, regular passive income from bonds can contribute to steady returns along the way. These payments can be reinvested, helping to grow your balance over time.

But not all bonds provide regular income, and the level of income can vary. Some bonds pay more than others, and some pay none at all.

Lower volatility than shares

Compared to shares, bond prices usually move more slowly. They are generally considered defensive assets — used to help reduce risk and potentially provide more stability.

Shares are often described as growth assets because they aim to increase in value over time, but they can rise and fall sharply.

The lower volatility of bonds can be helpful if you prefer a more stable investment experience, especially when share markets are falling. Of course, no investment is immune to market shifts, and some bonds can still lose value, especially when interest rates rise .

Capital preservation

Some people include bonds in their super because they’re looking to protect their savings, particularly as they get closer to retirement.

While no investment is completely risk-free, certain types of bonds are used to help preserve the value of the portfolio. This is especially relevant when someone wants to avoid large losses late in their working life.

It’s worth noting that not all bonds guarantee the return of your original investment. The safety of a bond depends on the issuer’s ability to repay what they’ve borrowed.

Diversification

Diversification means spreading your investments across various types of assets to help manage risk. Because bonds have different characteristics from shares, they don’t always rise or fall at the same time.

Including bonds in a super portfolio can potentially help reduce the overall impact if one part of the market performs poorly. This can provide a more balanced approach over the long run.

However, a diversified portfolio doesn’t prevent losses altogether; it just helps avoid relying on a single investment type.

Predictable returns (in some cases)

Some bonds offer more predictable outcomes than other asset types. For example, government bonds with fixed interest payments are known for their relative stability.

That said, the predictability depends on factors like the type of bond, interest rate changes, and who issued it.

But like all investments, bonds carry risks and may not always perform as expected. We’ll cover that next.

What are the risks of including bonds in a super portfolio?

While bonds can offer stability, they’re not without risk. Here are some of the key risks to consider.

Interest rate risk

Bond prices and interest rates move in opposite directions. When interest rates rise, bond prices often fall. This means if you hold a bond when rates increase, its market value could drop — even if the regular interest payments continue.

The longer the bond’s term, the more sensitive it may be to interest rate changes.

Inflation risk

Inflation can reduce the purchasing power of the interest payments you receive. If prices are rising quickly and your bond’s returns stay the same, your income might not go as far in real terms.

This risk is higher for fixed-rate bonds, which pay the same amount regardless of what’s happening in the economy.

Credit risk

Credit risk refers to the chance that the bond issuer might fail to make payments. If the issuer can’t repay the loan, you could lose some or all of your investment.

Government bonds are generally seen as lower risk. But corporate bonds (especially junk bonds ) can carry more uncertainty depending on the company’s financial health.

Lower growth potential

Compared to growth assets like shares, bonds tend to offer lower returns over the long term. This can mean slower portfolio growth, especially if your super is heavily weighted toward bonds.

Bonds may suit different purposes over time, but they usually aren’t relied on for high long-term growth.

How can someone add bonds to their super portfolio?

There are a few different ways to gain bond exposure through super. What’s available often depends on the super fund or platform you’re using.

Pre-mixed investment options through super funds

Most super funds offer ready-made investment options with different risk profiles. Options labelled “balanced” or “conservative” usually include a mix of assets, with bonds often making up a meaningful portion.

These options are designed to suit different comfort levels with risk and typically don’t require hands-on investing decisions.

Bond ETFs through flexible super providers

Some super platforms allow you to choose specific exchange-traded funds (ETFs) that track bond markets.

These bond ETFs might focus on government bonds, corporate bonds, or a mix of both. They offer exposure to a broad range of bonds through a single investment.

If you’re interested in super providers that offer more choice, it’s worth exploring options that include direct access to ETFs .

Self-managed super funds (SMSFs)

SMSFs give you full control over your super investments, including the option to hold individual bonds or bond ETFs.

They’re typically preferred by people who want to take a more active role in managing their super.

However, running an SMSF also comes with added responsibilities, costs, and regulatory requirements.

Are bonds right for every super portfolio?

There’s no single mix of assets that suits everyone. What works for one person’s super may not work for someone else.

The right combination depends on your goals, how much risk you’re comfortable with, and how far you are from retirement .

Many super portfolios include both shares and bonds to help balance growth with some level of stability. Bonds are often used more heavily as someone gets closer to retirement, when preserving savings becomes more of a focus.

That said, it’s a personal decision. The blend of assets that works for you will vary depending on your preferences, plans, and circumstances.

Build a super portfolio that works for you

Bonds aren’t designed to deliver big wins overnight. They’re often included to help manage risk and add potential stability to a portfolio.

If you’re thinking about how bonds could fit into your super, it helps to reflect on what feels right for your goals, timeline, and comfort with fluctuating values.

No one can predict how markets will behave, but staying informed and thinking long-term can help you build a portfolio that works for you.

Super isn’t about reacting to every market move. It’s about building a portfolio that works for your future, on your terms.