Written by What Are Bonds?
Bonds are debt securities issued by governments, municipalities, or corporations to raise capital. In exchange, investors receive periodic interest payments, known as the coupon, and the return of the principal when the bond matures.
- Types of Bonds: The most common types of bonds are government bonds (such as U.S. Treasury bonds), municipal bonds, corporate bonds, and high-yield (junk) bonds. Each type comes with its own risk and return profile.
- Benefits of Bond Investing: Bonds are generally considered safer than stocks, especially government bonds. They provide a predictable income stream, which makes them attractive to income-focused investors.
- Interest Rate Sensitivity: Bonds are sensitive to interest rate changes. When rates rise, bond prices tend to fall, which can affect the value of your bond portfolio. It’s important to consider interest rate trends when investing in bonds.
- Building a Bond Portfolio: Diversify your bond investments by selecting bonds with varying maturities, credit ratings, and issuer types. This helps spread the risk and stabilize your portfolio’s income stream.
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