Bond
A bond is essentially a loan. When you buy a bond, you're lending money to a government or company, which agrees to pay you interest (the coupon) and return your principal when the bond matures.
Why it matters
- Bonds are generally less volatile than stocks and are often used for stability and income.
- Bond prices move inversely to interest rates — when rates rise, existing bond prices generally fall.
- Not all bonds are equally safe — government bonds are typically lower-risk than corporate or high-yield bonds.
Simple example
- A 10-year government bond might pay a fixed interest rate (coupon) twice a year and return your original investment after 10 years.
- A broad bond ETF holds many individual bonds, spreading out interest-rate and credit risk.