Bonds can help hedge the risk of more volatile investments like stocks, and they can provide a steady stream of income during your retirement years while preserving capital.īefore we look at the different types of bonds, and how they are priced and traded in the marketplace, it helps to understand key terms that apply to all bonds: Many types of bonds, especially investment-grade bonds, are lower-risk investments than equities, making them a key component to a well-rounded investment portfolio. When you invest in a bond, you are a debtholder for the entity that is issuing the bond. Governments sell bonds for funding purposes, and also to supplement revenue from taxes. Fixed income is a term often used to describe bonds, since your investment earns fixed payments over the life of the bond.Ĭompanies sell bonds to finance ongoing operations, new projects or acquisitions. Once the bond reaches maturity, the bond issuer returns the investor’s money. What Are Bonds?īonds are investment securities where an investor lends money to a company or a government for a set period of time, in exchange for regular interest payments. In 2018, the Securities Industry and Financial Markets Association (SIFMA) estimated that global stock markets were valued at $74.7 trillion, while global bond markets were worth $102.8 trillion. Stocks tend to get more media coverage than bonds, but the global bond market is actually larger by market capitalization than the equity market.

When you buy bonds, you’re providing a loan to the bond issuer, who has agreed to pay you interest and return your money on a specific date in the future.

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