Bond Investing Basics

What Are Bonds?

Bonds are loans you make to governments or corporations. In return, they pay you regular interest payments and return your principal at maturity. Bonds provide stable, predictable income with lower risk than stocks.

Types of Bonds

• Treasury bonds: Backed by US government, safest option
• Municipal bonds: State/local government, often tax-free
• Corporate bonds: Company debt, higher yields but more risk
• I Bonds: Inflation-protected savings bonds
• Bond funds: ETFs or mutual funds holding many bonds

Bond Investing Strategies

• Bond ladder: Spread maturities across different dates
• Total bond fund: One-fund diversification
• Treasury focus: Maximum safety for conservative investors
• High-yield: Higher income with more credit risk

Key Considerations

• Interest rate risk: Bond values fall when rates rise
• Credit risk: Company or government could default
• Inflation risk: Fixed payments lose purchasing power
• Tax implications: Some bonds are tax-advantaged

Getting Started

For most investors, a diversified bond index fund like BND (Vanguard Total Bond Market) or FXNAX (Fidelity Total Bond) provides broad exposure with low fees.