What are bonds and how do they work?

What are bonds and how do they work?

Bonds are debt securities issued by entities like governments or corporations to raise capital. When you buy a bond, you're lending money to the issuer in exchange for periodic interest payments and the return of the bond's face value at maturity.

What types of bonds are there?

There are several types of bonds, including government bonds, corporate bonds, municipal bonds, and zero-coupon bonds. Each type has different risk levels and returns.

How do I invest in bonds?

You can invest in bonds through brokerage accounts, bond funds, or directly from the government. It's important to assess your risk tolerance and investment goals.

What are the risks associated with bonds?

The main risks include interest rate risk, credit risk, and inflation risk. If interest rates rise, bond prices typically fall, and if the issuer defaults, you may lose your investment.

Can you explain the difference between bonds and stocks?

Sure! Bonds are loans made to an entity, while stocks represent ownership in a company. Bonds typically offer fixed interest payments, whereas stocks may provide dividends and potential capital gains.