A bond is a fixed-income investment where you essentially lend money to a government, municipality, or corporation in exchange for periodic interest payments and the return of the principal amount at maturity. Bonds are considered safer than stocks and are a key component of a diversified portfolio.
When you buy a bond, the issuer promises to pay you a fixed interest rate (called the coupon rate) at regular intervals and return your principal when the bond matures. For example, a 10-year government bond with a 5% coupon rate and $1,000 face value would pay you $50 per year for 10 years, and then return your $1,000 at maturity.
Bonds come in various types: government bonds (issued by governments), corporate bonds (issued by companies), and municipal bonds (issued by local governments). They are ideal for conservative investors seeking steady income with lower risk compared to equities.