Bonds are debt obligations from a government, a municipal, or a company. You usually pay a certain amount for the bond. The entity will then pay you interest at different payments for the duration of the bond. Once the bond has matured, you get the face value of the bond back.
For instance, I prefer to buy 30 year Treasuries as my main source of bonds. If I buy a ($100) 30-year bond in February 2020, it will pay me interest until February 2050. If the interest rate was 2%, I would get paid $1 every February and August, for 30 years. I would end up being paid $60 over the course of 30 years and then I would receive my $100 back.
I know, it isn’t a very glamorous investment vehicle. You will not become rich investing in bonds, but you will stay rich investing in bonds. As we saw in March 2020, the stock market is extremely volatile. Over the course of many years, the stock market will go up. However, trying to pull money out while the market is down is a recipe for disaster. Having bonds on hand allows to you earn income as well as redeem them when necessary. You suffer a minor interest penalty if you pull then out early, but you can have money back into your checking account in a couple of days.
For me, bonds are a vital part of a total portfolio that includes high-interest savings, bonds, stocks, and real estate. Together you can get a solid rate of return. You can also protect yourself and your investments against wild swings in the stock market.
Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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