NowGazer

Introduction Bonds are often seen as the safer side of investing, especially for those seeking consistent returns and lower risk. But there’s more to them than meets the eye. This blog breaks down how bonds work, the different types, key terms, and when you should consider them for your portfolio.

1. What is a Bond? A bond is essentially a loan that an investor gives to a borrower (corporate or government). In return, the borrower agrees to pay interest (coupon) and repay the principal at maturity.

2. Key Bond Terms

• Face Value: Amount paid back at maturity
• Coupon Rate: Interest rate paid on the bond
• Maturity Date: When the bond principal is repaid
• Yield: Return on the bond based on purchase price

3. Types of Bonds

• Government Bonds: Issued by national governments (e.g., US Treasuries)
• Municipal Bonds: Issued by states or local governments
• Corporate Bonds: Issued by companies
• Zero-Coupon Bonds: No periodic interest; sold at a discount

4. Real-Life Example You buy a 10-year $1,000 bond with a 5% annual coupon. You get $50/year in interest and $1,000 back at the end of 10 years.

5. Risks Involved

• Interest rate risk
• Credit/default risk
• Inflation risk

6. How to Buy Bonds

• Directly through brokers
• Bond ETFs and mutual funds

7. Bonds vs. Stocks Bonds are more stable but offer lower returns. Stocks are riskier but have higher growth potential.

8. When to Invest in Bonds? Ideal for risk-averse investors or those nearing retirement. Also used for portfolio diversification.

9. Current Market Relevance In a high-interest rate environment, newly issued bonds offer attractive yields.

10. Conclusion Bonds are an essential part of a diversified portfolio. Knowing how they work can help you make informed investment decisions and protect your capital.