Bond
A bond is a loan you make to a government or company in exchange for regular interest payments and the return of your principal at a set maturity date. Bonds are generally less volatile than stocks, which is why they anchor the 'safer' side of a diversified portfolio.
Bond prices move opposite to interest rates, because a bond paying 3% is worth less once new ones pay 5%. How much less depends on duration: the longer until maturity, the more the price swings for a given rate move, which is why long-dated bonds are not the safe holding their reputation suggests. Holding an individual bond to maturity returns your principal regardless of the path, while a bond fund never matures and so shows the price change directly. Treasurys carry the government's backing; corporate and municipal bonds pay more to compensate for default risk, and municipal interest is often exempt from federal tax. Portfolios shift toward bonds as the money is needed sooner.
Put it to work
Investment Calculator
Project an investment portfolio's growth with monthly contributions — final value, your money vs market growth, and the year-by-year path.
Retirement Calculator
Project your retirement savings: what your balance could reach by retirement age and the monthly income it could sustainably provide.