A bond is like an "I owe you" (IOU) from a company or government that can be traded on the market. When a company needs money, it can sell bonds to people like you and me. It is a loan — they borrow this money from you, hoping that your cash can help grow the company. You make money when they pay you back with interest over time. Usually, bonds pay some interest every quarter.
Investing always comes with some risk. It's possible that when it comes time for the company or government to pay you back, they may not be able to. Bummer, but that's part of the risk in all types of investing, so do your research! Bonds are also usually time-bound, meaning they should fully pay you back on a certain date. We call these maturity dates. That's when the bond is supposed to fully pay back its original investors. Between the start and the maturity date, the company will pay interest on a schedule, usually every six months.
While there are risks with all investments, bonds are considered less risky than other investments. By adding bonds to your portfolio, you can diversify your investments and hopefully create more stable financial outcomes over time.
You've heard the warning, "don't put all your eggs in one basket." Diversification is like putting your eggs in different baskets to ensure that if something happens to one basket, you still have eggs to bring home later.
A portfolio is a window into your investments. You can see every asset in one spot so that it is really easy to manage. Think about it like a toy chest — you get to store and see all of your goodies in one place.
An investment is something you can buy and hold with the hope that it will make you money. Like a seed, it needs time to grow into a tall tree or produce delicious fruit. But like plants, it's no guarantee that things will go as planned. Through diversification, buying a bunch of different things increases your chances of some of those "seeds" doing well, even if others don't.
This information is educational, and is not an offer to sell or a solicitation of an offer to buy any security. This information is not a recommendation to buy, hold, or sell an investment or financial product, or take any action. This information is neither individualized nor a research report, and must not serve as the basis for any investment decision. All investments involve risk, including the possible loss of capital. Past performance does not guarantee future results or returns. Before making decisions with legal, tax, or accounting effects, you should consult appropriate professionals.