A bond is a debt security.
Borrowers issue bonds to raise money from investors willing to lend them money for a certain amount of time.
When you buy a bond, you are lending to the issuer, which may be a government, municipality, or corporation.
In return, the issuer promises to pay you a specified rate of interest during the life of the bond and to repay the principal, also known as the face value or par value of the bond, when it “matures,” or comes due after a set period of time.
Bonds can provide a predictable income stream. Typically, bonds pay interest twice a year.
If the bonds are held to maturity, bondholders get back the entire principal, so bonds are a way to preserve capital while investing. Bonds can help offset exposure to more volatile stock holdings.
The three main types of bonds are:
Corporate bonds are debt securities issued by private and public corporations.
High-yield. These bonds have a lower credit rating, implying higher credit risk, than investment-grade bonds and, therefore, offer higher interest rates in return for the increased risk.
Municipal bonds, called “munis,” are debt securities issued by states, cities, counties and other government entities.
In this video, Jack Bogle talked about government bonds and corporate bonds and how to invest in them.
Warning: This video is to show you John Bogle’s view about bonds. Please do your research before doing any investment. A good balance between return and risk is the key to investment success.
