A bond is a loan. An investor lends money to a government, corporation, or other entity. In return, the borrower pays interest at a fixed rate and returns the principal on a set date. Bonds are how governments fund roads, schools, and wars. Companies issue them to expand without selling stock.

Key terms matter. The face value is the amount borrowed. The coupon rate is the interest paid. The maturity date is when the principal comes back. Prices fluctuate with interest rates: when new bonds offer higher yields, existing bonds with lower coupons sell at a discount.

Bonds are generally safer than stocks, but not risk-free. A company can default. Inflation can erode returns. Rising rates can make bond prices fall. Still, for many investors, bonds provide steady income and balance a portfolio. The bond market is far larger than the stock market, though it gets less attention.

Types of bonds

• Government bonds (treasuries)
• Municipal bonds
• Corporate bonds
• Savings bonds
• Junk bonds (high yield, higher risk)