Bonds

What It Is

A bond is a loan you give to a government or company. They agree to pay you interest consistently and return the full amount later.

Think of bonds as the “calming balance” to your portfolio — delivering stability while your stocks focus on growth.

How It Works

Bonds work through three simple steps:

• You lend money. The issuer (government or corporation) borrows from you.
• You earn interest. They pay you fixed payments called “coupon payments.”
• You get your full amount back. At the end of the bond term (maturity), you receive your original amount.

Bonds smooth out volatility — when stocks drop, bonds often climb or stay stable.

Pros

• ✔ Very stable compared to stocks
• ✔ Pays consistent interest income
• ✔ Helps balance a portfolio
• ✔ Great for conservative investors
• ✔ U.S. Treasuries are considered extremely safe

Cons

• ✘ Lower returns than stocks
• ✘ Inflation can reduce real returns
• ✘ Long-term bonds fall when interest rates rise
• ✘ Corporate bonds can default (rare for high-quality)

Risk Level

⭐️⭐️ (Low Risk)

Treasuries: Very low risk Corporate bonds: Medium High-yield bonds: Higher risk but higher income

Time Horizon

Bonds work best for short-to-medium goals (1–10 years). Long-term investors may also use bonds for stability and balance.

Beginner Mistakes to Avoid

• ❌ Buying long-term bonds during high rates
• ❌ Reaching for high-yield (junk) without knowing risks
• ❌ Ignoring inflation’s impact
• ❌ Holding only bonds — no growth from stocks

Popular Bond Types & Tickers

📌 Treasury Bond ETFs (Very Safe)

📌 Total Bond Market ETFs

📌 Corporate Bond ETFs

📌 Municipal Bond ETFs (Tax-Free)

📌 High-Yield (“Junk”) Bonds