A bond is a loan you make to a company or government. In return they pay you interest on a schedule and give your money back on a set date.
When you buy a bond, you lend money to the issuer — a government or a company — for a fixed period. In return they promise to pay you regular interest (the coupon) and to repay the original amount (the face value or par) on the maturity date. A stock makes you an owner; a bond makes you a creditor.
Here's the one rule that trips up beginners: when bond prices rise, yields fall, and vice-versa. A bond pays a fixed coupon, so if you pay more for that fixed stream, your effective return (yield) is lower. When interest rates in the economy rise, existing bonds with lower coupons become less attractive, so their prices fall to lift their yields into line.
Mental model: a bond is a fixed income stream. The price you pay for that stream determines your yield — pay less, earn more; pay more, earn less.
Bonds are generally less volatile than stocks and pay predictable income, which is why they anchor a balanced portfolio. When stocks fall, high-quality government bonds often hold up or rise, cushioning the blow. The trade-off: bonds usually deliver lower long-run returns than stocks.
Try it risk-free: See how mixing steadier and riskier holdings changes your equity curve in the stock market simulator with play money — no sign-up, no real risk.
Not advice: educational content only. For authoritative basics see the SEC at investor.gov.
Related: what is a mutual fund, risk vs reward, and what is a portfolio.
A bond is a loan from you to a government or company. They pay you regular interest (a coupon) and return your original money (the face value) on the maturity date.
A bond pays a fixed coupon. When new bonds offer higher rates, older lower-coupon bonds become less attractive, so their prices drop until their yields are competitive again.
High-quality bonds are generally less volatile than stocks and pay predictable income, but they usually earn lower long-run returns. Lower-rated bonds carry more risk of default.
The coupon is the fixed interest the bond pays, usually expressed as a percentage of its face value and paid on a set schedule until maturity.