Are Bonds “Safe” Investments?
Friday, July 20th, 2007When you invest in bonds, you are lending your money to a company, or even a government. This money is used for developing projects or paying daily overhead. In exchange for this, they pay you back, with interest.
People generally say that bonds are less risky than stocks, since they have a fixed life span and fixed interest payments. But you can lose money, because the kind of returns you get fluctuates depending on interest rates. If interest rates drop, then you’re lucky: your bonds earn money. However, you can more or less assume that if you keep bonds until they mature, you will get at least what you lent out—which is more guarantee that you’ll get from playing stocks.
Remember that bonds are different from bond funds. Bonds have a guarantee that you get a fixed amount by the time it matures. Bond funds may give higher yield but are also higher risk, since values can change.
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