How Private Credit Complements Traditional Bonds in Your Portfolio

For years, traditional bonds were the workhorse of income portfolios. They paid steady coupons, acted as a counterweight to equities, and gave investors peace of mind. But today’s reality is different. Interest rates swing, inflation eats away at fixed coupons, and bond prices can move sharply with central bank policy.

That doesn’t mean bonds have lost their place. They’re still essential for liquidity and safety. But to build a portfolio that generates enough income while keeping risk in check, more investors are adding something new to the mix: private credit.

Bonds: Familiar but Limited

Bonds are straightforward: you lend to a government or corporation, collect interest, and get your principal back at maturity. Treasuries and high-grade corporates are liquid and well-regulated, which makes them attractive for large institutions and individual investors alike.

But there are cracks in the old model:

• Rate sensitivity: When interest rates rise, bond prices drop. The “safe” part of a portfolio can suddenly show losses on paper.
• Modest yields: Investment-grade bonds often yield in the mid-single digits—barely ahead of inflation.
• No built-in cushion: Bonds are usually unsecured, meaning if the issuer defaults, recovery is limited.

For investors who need steady income—retirees, lawyers, doctors, executives—the math often doesn’t add up.

Private Credit: A Different Kind of Fixed Income

Private credit is simply lending outside the public bond market. Instead of buying a bond traded on an exchange, you invest in a fund that issues secured loans, often backed by real estate.

Here’s why it feels different:

• Income from interest, not markets. Payments are based on loan contracts, not daily investor sentiment.
• Collateral-backed. Loans are usually in first-lien position, secured by real assets, with conservative loan-to-value ratios.
• Higher yields. Because you give up some liquidity, you earn an “illiquidity premium.” Returns in the 8–10% range are common.
• Predictable distributions. Many funds, including LBC Capital Income Fund, LLC’s, pay monthly—making income feel like a paycheck.

It’s not about replacing bonds. It’s about balancing them with a strategy that isn’t tied to rate swings and stock market jitters.

Why the Two Work Better Together

Think of bonds and private credit as teammates, not rivals. Each brings something the other can’t.

• Liquidity + Yield. Bonds give you flexibility; private credit gives you income. Together, they cover both needs.
• Market hedge. Bond prices move with interest rates and inflation expectations. Private credit income keeps flowing regardless of daily market news.
• Risk spread. Bonds rely on issuers’ credit strength, while private credit adds protection through collateral and disciplined underwriting.

A portfolio that blends the two is stronger, steadier, and better suited to today’s unpredictable markets.

A Simple Example

Imagine you’ve allocated $1,000,000 to fixed income:

• $700,000 into Treasuries and corporate bonds at 4% yield → $28,000 annual income.
• $300,000 into private credit at 9% yield → $27,000 annual income.

Total = $55,000 in income. That’s a 37% increase over bonds alone, with a portfolio that’s still anchored by safe, liquid assets.

What to Watch Out For

Both asset classes carry risks:

• Bonds: Sensitive to interest rates and inflation. Corporate defaults can hit unsecured bondholders hard.
• Private credit: Less liquid, with redemption windows instead of daily trading. Requires confidence in the fund manager’s underwriting.

The key is balance. Bonds provide safety and flexibility. Private credit provides stability and enhanced yield. Together, they’re a more complete solution.

Who This Approach Suits Best

• High earners who want reliable passive income outside of equities.
• Retirees looking to boost cash flow without adding equity risk.
• Family offices and HNW investors who can commit capital for a few years in exchange for higher yields.
• Anyone tired of bond portfolios that don’t keep up with inflation.

How We Structure It at LBC Capital Income Fund, LLC

At LBC Capital Income Fund, LLC, we’ve designed private credit strategies to slot directly alongside bonds:

• Loans are always secured by California real estate in first-lien position.
• Conservative loan-to-value ratios protect capital.
• Monthly distributions create a steady cash flow for investors.
• Our team invests alongside clients, so incentives stay aligned.

It’s a model built for stability, discipline, and trust—exactly what investors want when diversifying beyond traditional bonds.

Better Together

Bonds are still a foundation. But in a world where yields are inconsistent and markets are volatile, they need reinforcement. Private credit provides that.

By adding secured, income-focused lending to a traditional bond portfolio, investors can enjoy higher, more reliable cash flow and a smoother ride through market cycles. For those who care about income, preservation, and diversification, private credit isn’t a replacement for bonds—it’s the missing piece that makes the portfolio whole. Book your call with us to learn more.