Bonds can provide balance for a stock portfolio because stocks and bonds tend to perform well in different types of market environments. Young and middle-aged investors who plan to invest for the long term for goals like retirement and college for their children should be invested primarily in growth investments, which are stocks. Stocks provide a higher return over the long term. But they can be volatile in the short term. That's where bonds come in.
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.