Glossary
Bond
A bond is a loan an investor makes to a government or company, which promises to pay interest on schedule and return the principal at a set maturity date.
Bonds range from U.S. Treasuries, backed by the federal government, to corporate and municipal bonds with varying credit risk. Bond prices move inversely to interest rates: when rates rise, existing bonds paying older, lower rates are worth less if sold before maturity.
Why it matters in practice
In a portfolio, bonds mainly serve as ballast — steadier value and income that offsets stock volatility — rather than as the growth engine. The trade-offs are credit risk (will the borrower pay?), interest-rate risk (what happens if rates move?), and inflation risk (will the fixed payments still buy as much?). Bond funds spread the credit risk across many issuers.
Related terms: Stock · Yield · Asset Allocation · Inflation · Money Market Fund