Investing term

What is Bond?

A loan from you to an issuer (government or company), repaid with interest on a known schedule.

A bond is a loan you make to a government or company. In return the issuer pays you regular interest (the coupon) and repays the original amount (the face value) on a set date (maturity). You're the lender, and the bond is the IOU with fixed terms written on it.

Bonds are generally steadier than stocks and provide predictable income, which is why they're the classic ballast that cushions a portfolio when stocks fall. Their two main risks are that the issuer defaults (fails to pay) and that rising interest rates push the market price of existing bonds down. Hold a sound bond to maturity, though, and you collect your coupons and get your face value back.

Coupons, then your money back
You lend $1,000 → collect coupons each year → get $1,000 back at maturity$40yr 1$40yr 2$40yr 3$40yr 4$40yr 5$1,000maturity+ final coupon

A bond is a loan: you collect fixed coupons each year, then get the face value back at maturity. Steady income and a known payback — as long as the issuer doesn't default.

For example

Buy a $1,000 bond paying a 4% coupon and you collect $40 a year, then get your $1,000 back at maturity — assuming the issuer doesn't default.

Learn it by doing

That's Bond in theory — it clicks when you use it. Practise it hands-on in a free, interactive lesson (Stage 4, Stocks, Bonds, Cash & Alternatives).

Try the free lesson →

Why it matters to you

Bonds matter because they play a different role from stocks: income and stability rather than growth. In a diversified portfolio they're the shock absorber, often holding their value or rising when stocks tumble, which is what lets a nervous investor stay invested. Understanding that a bond is a fixed-terms loan — with a knowable income and a knowable payback — is what makes its steadier behaviour make sense.

⚠ Thinking bonds can't lose money

Bonds are steadier than stocks, but 'steady' isn't 'safe'. If interest rates rise, the market price of existing bonds falls, so a bond fund can post real losses in a year. And a shaky issuer can default. Bonds reduce a portfolio's swings, but they carry genuine interest-rate and default risk of their own.

Frequently asked questions

How does a bond work?

You lend money to a government or company by buying the bond. The issuer pays you fixed interest (the coupon) on a schedule and repays the original amount (the face value) at a set maturity date. It's a loan with terms fixed up front, which makes its income predictable.

What's the difference between a bond and a stock?

A bond makes you a lender with fixed income and a claim that ranks ahead of shareholders; a stock makes you a part-owner with variable returns and unlimited upside. Bonds are generally steadier and pay set interest; stocks are riskier but have historically grown more over the long run.

Are bonds a safe investment?

They're generally safer than stocks, but not risk-free. Their prices fall when interest rates rise, and issuers can default — government bonds in their own currency rarely do, while shaky companies do more often. Bonds reduce a portfolio's overall swings but carry their own interest-rate and default risks.

Read the full guide

AnalysisTypes of Bonds, Explained: From Government Debt to JunkThe main types of bond — government, corporate, high-yield and sovereign — ranked by risk and yield, in plain English. Who you're lending to changes everything.9 min readInvesting basicsStocks vs Bonds: The Growth Engine and the SeatbeltTwo things sit underneath almost every portfolio: stocks and bonds. Here's what each one really is, in plain English — and why sensible investors hold both.6 min readAnalysisWhat Is Duration? Why a “Safe” Bond Fund Can Still Lose You MoneyDuration is the number that tells you how much a bond loses when interest rates rise. It explains 2022, it explains your bond fund, and almost nobody checks it.9 min read

Related terms

AlternativesInvestments outside the core stocks/bonds/cash mix — REITs, commodities, gold, crypto.Capital gainThe profit from selling an investment for more than you paid.CommodityA raw physical good like gold, oil, wheat, or copper — priced by the ounce, barrel, or bushel.CorrelationHow tightly two investments tend to move together, measured from +1 (identical moves) to −1 (opposite moves).
← Back to the full glossary