Summary
A bond is a fixed-income investment where an investor lends money to a government, company, or other issuer for a specified period.
In return, the issuer pays regular interest (known as coupon payments) and repays the bond’s face value (principal) when it reaches maturity.
Why it matters
Bonds provide investors with a predictable income stream and are generally considered less volatile than equities. They can help diversify an investment portfolio, preserve capital, and reduce overall investment risk.
Bond prices may rise or fall before maturity due to changes in interest rates, credit quality, and market conditions, making them an important part of portfolio management.
How to read it
When reviewing a bond, investors should consider its coupon rate, maturity date, yield, and credit rating. These factors help assess the bond’s potential return and level of risk.
Higher-yielding bonds may offer greater returns but often carry higher credit or market risk. Investors should evaluate these characteristics alongside their investment objectives and risk tolerance.