Which of the following is a diversification benefit of owning bonds?

Owning bonds provides a diversification benefit primarily due to their characteristic of having less volatility than major asset classes, such as stocks. This lower volatility implies that the price fluctuations of bonds are generally not as extreme as those of stocks, allowing investors to reduce the overall risk in their investment portfolios when bonds are included.

Bonds typically offer a steadier stream of income through interest payments, and their prices are less sensitive to economic swings compared to equities. By incorporating bonds into a portfolio, investors can mitigate potential losses during market downturns, which in turn contributes to a more stable overall portfolio performance over time. This stabilizing effect is particularly valuable in times of market stress, as the returns from bonds tend to be more predictable.

The other options do not represent diversification benefits in the same way. While higher yields, tax-free income, and growth potential may be attractive features of certain bonds or bond types, they do not fundamentally offer the risk-reducing properties that enhance the diversification of a portfolio. Thus, the notion that bonds provide stability and lower volatility is the primary reason they are considered beneficial for diversification.