What are bonds?

Bonds are a diverse subject. Some people know what they are, whilst others struggle to define them. This article will provide a brief guide on bonds and what they are. Read on to learn more on bonds.

Bonds

What are bonds and stocks? Bonds, which are also known as fixed income, are an investment you can purchase where basically you lend money to whoever issued the bond in exchange for future income in the form of interest payments. At the end of the life of the bond, you get your original investment back as well as the interest payments and your investment amount, which are guaranteed by the company or government that issued the bonds. Where do you get bonds? There are different types of bonds and different types of entities that issue them. There are Government bonds, issued by different levels of government which can range from a small town to the U.S. government and there are Corporate bonds, which are issued by companies. Although the companies can be small or large, most corporate bonds are issued by the larger companies.

Making money from bonds

How do you actually make money from bonds? It is really similar to how a bank operates. Most bonds pay a set amount of money every so often to the holder of the bond. You lend money out (via the bond) and the borrower (issuing company or government) pays you interest. This is the same sort of thing that happens in a savings account when your bank pays you interest on your deposits. How can they benefit you? Bonds are considered a less risky investment compared to stocks because the interest payments and the original investment are guaranteed by whoever issues the bond. Typically, “safer” bonds that are issued by the government pay a lower interest rate, whereas “riskier” bonds issued by companies will pay a higher interest rate to compensate for the extra risk.The risk with bonds is that if the company or government that issues the bond goes bankrupt or runs into financial problems, then the bond holder may not get their money back. Conclusion Therefore, bonds can be a good investment opportunity for your money. You can find out more through researching on the internet.