INVESTINGBUDGETINGCOLLEGE

What is a Bond?

Many of us have attempted to get into investing, but might not have found the best options for our goals and personalities. The most talked about investing options are stocks and cryptocurrency, which can be too fast paced for some. Below I’ll talk about another option that has decreased in popularity over the years, but still delivers great results today, bonds.

A bond is essentially a loan made by an investor to a borrower. In this situation the borrower can be a corporation, company, state, or even the government. Bonds are issued to allow borrowers to fund different projects, upgrade equipment, and do necessary things that need to get done for them to become more profitable.

Bonds have credit ratings which are issued by credit rating agencies such as Standard and Poor’s, Moody’s, and Fitch Ratings. The credit ratings rank the bonds, which plays a part in determining a bond’s interest rate, which is known as the coupon rate. High quality bonds are called investment grade bonds, and anything other is considered high yield or junk bonds.

A bond is like a contract, and it is structured with an issuer (borrower), the bond’s principal (loaned funds), maturity date (end date), coupon (interest payment), and the coupon rate (interest rate). Bonds will rise or fall in value as interest rates change. Typically bonds are more of a long term investment, and can sometimes be less risky than dealing with stock due to the clarity in the terms of the contract.

Sources:

• https://www.investopedia.com/terms/b/bond.asp
• https://www.investor.gov/introduction-investing/investing-basics/investment-products/bonds-or-fixed-income-products/bonds