What Are Bonds?

What are bonds? Bonds are in essence loans to a company or government. Bonds are in essence loans to a company or government. They provide interest income and generally a lower risk of lower volatility...

Bonds are in essence loans to a company or government. They provide interest income and generally a lower risk of lower volatility than stocks depending upon the category of bonds that you invest in. Unless one is investing in government securities, it is often times better to use a mutual fund investing in bonds because it diversifies the risk of a particular company or for that matter, I guess country from default thing on an individual security. If you own a number of those the likelihood of that taking place dramatically influence your principle as much lower and that is what a bond fund provides. There are both primary issuance of bonds as well as what is called the secondary market. The primary market consists of companies or governments issuing those bonds in exchange for funds, so in other you might buy either through a security broker or directly bonds of General Motors acceptance cooperation or Caterpillar or the US government. The majority of bonds though are sold on the secondary market. So, you would buy a bond from another holder of a bond through a securities market.

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