Bonds

Bonds and other ‘fixed income securities’ are investments based on debt. When you buy a bond, you are lending your money to a government or company for a certain period of time. In return, they promise to pay you interest on your money and to repay the ‘face value’ at the end of the bond’s term. The face value is the value of the bond when it was issued. Many fixed income securities come with a guarantee and are relatively safe. They tend to offer better rates of return than cash-equivalent investments because you are taking on more risk by lending out your money for a longer period. Other bonds, such as ‘junk’ bonds, offer much higher rates of return, but can be extremely risky and devoid of any guarantees.