Bonds provide a lower, but more stable, return. Many financial planners say that such investors need bonds to balance the stocks, to provide diversification or proper asset allocation. In fact, that's the default allocation for most planners. For many Americans, though, that's too much in bonds. This allocation can put too much of a drag on a long-term portfolio.
Cash is stable.
Bonds are not. Bonds can be nearly as volatile as stocks when interest rates change rapidly. Cash provides the additional advantage of flexibility. With a portion of your portfolio in cash, you can move into the stock market gradually or to take advantage of a dip in the market. Now let's look at income, the second reason to buy bonds.