What is a bond - and should I invest in

What is a bond - and should I invest in one?

Everyone is looking to save money for something - retirement, a first or second home, a new car or college education. But times are tight and the stock market has never been more unreliable. Rising markets and falling markets is one thing, but when the market flucuates up and down on a weekly or even daily basis, no one knows what will happen. The better investment might be something else. The right investment might be a bond.

What is a bond? Well, to answer a question like 'what is a bond' is not too difficult to define. I've heard the answer defined as an IOU from a business or government to help raise funds for the business or government in return for a fixed interest rate. So, in plain English, what is a bond? It is basically a loan you would take out but in reverse. Instead, you are lending money to a company or government for a set interest rate. What is a bond but simply the bet that a company will repay a debt.

What is a bond good for? Well, a company or government might need to raise cash quickly. A common use for a bond by the government is to build a new school or other public service building. This bond is usually pretty safe - rarely do city or state governments fail on a bond. Some companies also use bonds for the same reason. Perhaps they need a massive overheal of some of their factories or managements. Maybe a real estate developer would issue a bond to help pay for a new development or project. These bonds can be good too, but often are riskier. As a general rule, to know what is a bond is to know that bonds are in exercise in risk and reward. A lower interest rate on a bond floated by a company indicates that it is a relatively safe investment while a higher interest rate, say 10 or 12 percent, is an indication or incentive to invest in this company - but they might not make it through the duration of paying off the debt. You are given a higher reward for taking a higher risk.

While stock market investments are generally better over the long term, the benefits of a bond can include a tax-free return if it's a municipal bond, and relatively certain guarantee that you get your full investment returned. What is a bond, you might hear in the future, and you'll know exactly what kind of investment opportunity it is.

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