Conclusion on Bonds

Now you understand the basics of bond investments. Here is a recap of what we discussed:

• Bonds are just like IOUs. Buying a bond means you are lending out your money.
• Bonds are also called fixed-income securities because the cash flow from them is fixed.
• Stocks are equity; bonds are debt.
• The key reason to purchase bonds is to diversify your portfolio.
• The issuers of bonds are governments and corporations.
• A bond is characterized by its face value, coupon rate, maturity and issuer.
• Yield is the rate of return you get on a bond.
• When price goes up, yield goes down, and vice versa.
• When interest rates rise, the price of bonds in the market falls, and vice versa.
• Bills, notes and bonds are all fixed-income securities classified by maturity.
• Government bonds are the safest bonds, followed by municipal bonds, and then corporate bonds.
• Bonds are not risk free. It's always possible for the borrower to default on the debt payments.
• High-risk/high-yield bonds are known as junk bonds.
• Bonds allow an investor to diversify their portfolio
• there is generally less risk in owning bonds than in owning stocks, but this comes at the cost of a lower return.