What Are Bonds? How Do They work?
A bond is a debt security, similar to an I.O.U. When one purchase a bond, he actually is lending money to a government, municipality, federal agency, corporation, or other entity dubbed as the issuer. In return for the loan, the issuer promises to pay a specific rate of interest during the life of the bond and to repay the face value of the bond when it becomes due. Types of bonds include U.S. government securities, municipal bonds, corporate bonds, mortgage and asset—backed securities, federal agency securities and foreign government bonds.
Bond investing is likened to mortgage. The big difference though is that the investor is not a bank. Bond investing is a lucrative industry. This is because bonds have a number of attributes that stocks could not match. These attributes include capital preservation, interest at set intervals of time, at the same time huge tax benefits for several individuals.
