What Are Bonds?

The Short Explanation:

Bonds are units of debt issued by corporations or governments, which allows the issuer to raise capital by taking a loan from the investors. Bonds are considered fixed-income securities as typically a bond pays back a fixed interest rate (coupon) to the debt holders. Bonds also have maturity dates at which point the principal amount must be paid back in full.

Bonds are typically considered to be safer investments than stocks and a good tool for diversifying ones portfolio. However, bonds can be risky because the issuer of the bond can default on their payment (e.g. a corporation goes bankrupt). Bonds issued by governments are typically considered to be less risky than ones issued by corporations.