When you buy a bond, you’re essentially lending money to a company or government. In return, they pay you regular interest over a set period of time, then they return your original amount when the time period is up. Bonds are generally steadier and less risky than stocks, but they also tend to earn less over time.
- $1,000You lend it
- +$40 a yearInterest for 5 years
- $1,000 backAt the end
Walk through the numbers
You buy a $1,000 bond paying 4% a year for five years. You collect $40 a year in interest, and at the end of five years you get your $1,000 back, as long as the borrower pays.
Bonds usually swing less than stocks, so a slice of bonds can make a whole plan steadier and easier to stick with.
Related terms
For education only and not personalized investment advice. Examples are hypothetical illustrations, not a prediction or a promise of results. All investing involves risk, including the possible loss of principal.