GLOSSARY TERM
Bond
A bond is a type of investment where you lend money to a government, company or other organization for a set period of time. In return, they usually pay you interest and repay the original amount later.
What does this mean in practice?
When you buy a bond, you are not buying part of a company like with a stock. You are acting more like a lender. Bonds are often seen as lower-risk than stocks, but they usually offer lower long-term returns as well. Their value can still go up and down, especially when interest rates change.
Example
A government may issue a bond that pays 3% interest per year and returns your money after five years. During that time, you receive interest payments and get the original amount back at the end, if the issuer can repay it.
Why it matters
Bonds can help balance a portfolio. They may reduce large ups and downs and add stability, especially when combined with stocks.
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