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Bonds

Definition

A bond or bonds are financial securities that represent a company's or another issuing entity's debt (such a government). When you buy a bond, the issuer is required to make regular interest payments to you in the form of cash. These payments are sometimes called coupons as in the old days, you would literally clip a coupon from the bottom of the security and hand it in for your cash payment. The principal of the bond is paid at the maturity date. A bond represents a legal contract between the borrower and lender. Unlike stock holders, bond holders do not have equity (or ownership) in the company so they do not have a say in the management of the company. However, if a company goes bankrupt then the bond holders are paid back before the stock holders. The stock holders are only paid if all of the bond holders get their investment back first.

Using the term Bonds :

The retired couple moved most of their investment portfolio into bonds because they wanted the higher level of safety offered by bonds over stocks. Bonds can fluctuate in value over time due to credit risk and interest rate risk changing over time.

Pay Special Attention To :

Make sure you are purchasing bonds from a company, city or country that you believe will in fact repay you your loan to them. If they do not repay you in both interest and principal at maturity, they will be in default and your investment will be at risk. Investigate your purchases carefully and get the help of a professional if necessary.

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Related terms

Duration , Interest Rate Risk , Yield Beta

'Bonds' appears in the definitions of these other terms:

After-Tax Asset Allocation Alternative Investments Duration Yield Beta