Bond
Also called: fixed income
A loan to a government or company that pays interest and returns the original amount at a set date.
Where a share makes you an owner, a bond makes you a lender. You receive interest for the term and, if all goes well, your money back at the end.
That makes bonds more predictable than shares, and lower-returning for the same reason — you are taking less risk, so you are paid less.
They are not risk-free. The borrower can fail to repay, and bond prices move when interest rates change: existing bonds paying old rates become less attractive when new ones pay more.
They appear in portfolios mainly to reduce the range of outcomes, which matters most for people who will need to draw on the money reasonably soon.
Words on this page
- Interest — The price of using someone else's money — paid by borrowers, earned by lenders.
- Share — A small piece of ownership in a company, including a claim on its profits.
- Risk — The chance that an outcome is permanently worse than you needed it to be.
- Interest rate — The price of borrowing money, or the reward for lending it, expressed as a percentage per year.
- Portfolio — Everything you own as investments, considered as one thing rather than separately.
Related terms
Covered properly in Learn.