For many investors, bonds are more mysterious than stocks. Most people know that a bond is a loan and you are the lender. Who’s the borrower? Usually, it’s either the U.S. government, a state, a local municipality or a big company like General Motors. All of these entities need money to operate — to fund the federal deficit, for instance, or to build roads and finance factories — so they borrow capital from the public by issuing bonds.
There are several risks that you take when you buy a bond (or to put it another way, lend your money).
This is a greatly simplified discussion of bond risk, but it gives you a starting point to try to determine how bond investing should be viewed.
Arie J. Korving, a CERTIFIED FINANCIAL PLANNER™ professional, has been delivering customized wealth management solutions to his clients for more than three decades. Prior to co-founding Korving & Company, he was First Vice President with UBS Wealth Management and held management positions with General Electric.