Investing in bonds can be a great way to provide stability to your investment portfolio and provide returns you might not get from other investments. A bond is a type of debt issued by an organization or government. Unlike stocks, bonds do not represent ownership in a company. Instead, they are a loan. In exchange for lending the issuer money, you are rewarded with periodic interest payments and the return on your initial investment when the bond matures. As with any loan, you run the risk that the borrower will default and not repay what is owed to you.

Governments, companies, and other entities issue bonds to raise money for many projects. Governments commonly issue them as interest on their existing national debt. Governments typically issue bonds with different interest rates or contractual terms at different maturities (or "lives"). The length and scale of the government's operations, the state of its finances, and the nation's creditworthiness all influence which securities it issues and at what interest rate. The most common bonds are those issued by governments and known as "sovereign," or "national," debt issues. Millions of investors worldwide buy bonds in their countries through security exchanges, government bond brokers, and banks.

In order to lower the overall interest rate, it must pay its bondholders. A government may issue bonds with different rates of interest. This is similar to how many credit cards offer a low introductory interest rate and then adjust higher after a certain period. For example, the U.S. Treasury may offer a 6% fixed-rate bond that expires after two years, a 7% fixed-rate bond that expires in eight years, or a 10% floating rate tied to an index that expires in 20 years.

Buying and selling bonds can be much more complicated than buying stocks. While dozens of stocks are traded on the major exchanges every day, the number of bonds available for purchase is limited. The limited number of potential buyers can make negotiating a reasonable price on your purchase or sale easier. Typically, it would be best if you traded with a bond broker specializing in fixed-income securities. These specialist firms typically have access to a more extensive inventory of bonds, which you may purchase at generally lower commissions than you would pay if you make transactions directly with an issuer via its investor relations department or a bank.

Bonds, like other debt securities, are governed by complex rules and regulations. These rules and regulations ensure that bondholders receive all the benefits they would expect from their investment without receiving any more than they bargained for. Bonds offer investors an alternative to stocks and cash. They can provide stability and potential growth through leverage, which is the ability of an investor to increase his or her money by borrowing it to purchase more securities. Bonds also offer a high level of liquidity, meaning that you can sell your bonds on a moment's notice with little difficulty; however, this can also make them more volatile than other types of assets because they are straightforward to trade. Bonds are often used by pension funds for conservative investments as well as by corporations for investment needs such as capital investments or acquisitions.