Definition of Bonds

What is the definition of bonds?

A bond is basically a medium or long term loan where the owner of the bond receives regular interest payments (there are a few types of bonds where interest isn't paid). Then, at the end of the bond term the initial loan amount is returned to the bond owner.

A bond can be issued by corporations, the US government, or even state and local goverments. As a bond owner you don't own part of the issuing entity like you would with stocks. You do, however, have a greater rights to the income and assets if the issuer falls on hard times or files for bankruptcy.

Bond investing is safer than stock investing because issuer has to pay the interest to you while companies have no legal obligation to pay their stock holders dividends ever. Bonds aren't risk-free however.

For details on how and why to invest in bonds, check out investing in bonds.

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