A bond is an investment that pays fixed interest. Generally, bonds are safer than funds, as bondholders receive more money back in the event of liquidation. But, as with other investments, bonds come with risks. The percentage of your investment that should be in a bond is highly dependent on your goals and risk tolerance.
A bond is also risky because you may have to sell it before it matures, which can cause you to lose money. In addition, if the issuer is not financially sound, the bond can default, meaning that the investor will not receive the full amount invested. Higher-yielding bonds may also carry a higher risk. It is also important to remember that bonds come in different maturities and terms. You should keep in mind that longer maturities are more risky than shorter ones.
Bond prices are affected by a few factors, most notably the interest rate. Interest rates are often set by central banks as a way to manage the economy. Low interest rates will drive bond prices up, while high rates will lead to lower prices. Interest rates may also affect the price of different types of bonds, as some are more sensitive than others.
Bonds are debt securities issued by governments and corporations. Investors purchase bonds by putting up an upfront amount (called the “principal”), with the expectation of receiving the money back plus interest. While they aren’t risk-free, bond investments are considered safer than stocks.
