Which characteristic is true of government bonds?

Government bonds typically offer lower returns than stocks due to their lower risk profile. When investors purchase government bonds, they are essentially lending money to the government, which is generally considered a stable and reliable borrower. As a result, the return on government bonds is often fixed and lower compared to the potential returns available from stocks, which can fluctuate significantly based on company performance and market conditions.

The lower return aligns with the principle of risk and return in investment practice—higher-risk investments, like stocks, generally yield higher potential returns, while lower-risk investments, like government bonds, tend to provide lower returns. This characteristic makes government bonds an essential component of a diversified portfolio, as they can provide stability and income with reduced volatility.

In contrast, government bonds do not typically have a maturity period of less than a year, as they can range from short-term securities like Treasury bills to long-term bonds. They are considered safe investments by many, especially U.S. Treasury securities, which are backed by the full faith and credit of the government. While there are risk factors involved in all investments, government bonds are viewed as one of the safer options available to investors.