1. Bond Basics: Introduction
  2. Bond Basics: What Are Bonds?
  3. Bond Basics: Characteristics
  4. Bond Basics: Yield, Price And Other Confusion
  5. Bond Basics: Different Types Of Bonds
  6. Bond Basics: How To Read A Bond Table
  7. Bond Basics: How Do I Buy Bonds?
  8. Bond Basics: Conclusion

Long before there were corporations that issued shares of stock for investment, there was the systematic use of debt to raise money. Debt involves borrowing money with the promise to pay it back in full, along with interest over time. The guaranty assuring that promise is known as a bond. In other words, bonds represent debt obligations.

Bonds have been around for millennia. The ancient Mesopotomia city of Ur in what is today Iraq had a bond market around 2400 B.C., guaranteeing repayment for borrowed grain. Kings, and later democratic governments often borrowed by issuing bonds to fund wars and territorial expansion. In modern times, governments still borrow to undertake projects, but there is also a thriving market for bonds issued by corporations, who borrow for expanding profitable undertakings. For example, a company may borrow in order to acquire a competitor, to build a new factory, or to hire personnel.

Pacific Railroad Bond issued by the City and County of San Francisco in 1863

Bonds are fundamentally different from stocks in a number of ways. Shares of stock represent claims on profits and confer voting rights to shareholders and the price of stocks thus vary with expectations of future profitability for the firm. Bonds, on the other hand, represent debt repayment obligations and are priced based on factors such as the likelihood of being repaid.

In the modern economy, most diversified investment portfolios contain some allocation each to stocks and bonds, where bonds are often considered the more conservative choice of the two. For a number of reasons that will be discussed in this tutorial, bonds do offer some safeguards that shares of stock lack.

This tutorial will hopefully help you understand bonds, and to determine whether or not bonds are right for you. We'll introduce you to the fundamentals of what bonds are, the different types of bonds and their important characteristics, how they behave, how to purchase them, and more.


Bond Basics: What Are Bonds?
Related Articles
  1. Investing

    The Basics Of Bonds

    Bonds play an important part in your portfolio as you age; learning about them makes good financial sense.
  2. Investing

    Corporate Bond Basics: Learn to Invest

    Understand the basics of corporate bonds to increase your chances of positive returns.
  3. Investing

    The Advantages Of Bonds

    Bonds contribute an element of stability to almost any portfolio and offer a safe and conservative investment.
  4. Investing

    The Best Bet for Retirement Income: Bonds or Bond Funds?

    Retirees seeking income from their investments typically look into bonds. Here's a look at the types of bonds, bond funds and their pros and cons.
  5. Investing

    Investing in Bonds: 5 Mistakes to Avoid in Today's Market

    Investors need to understand the five mistakes involving interest rate risk, credit risk, complex bonds, markups and inflation to avoid in the bond market.
  6. Investing

    Top 6 Uses For Bonds

    We break down the stodgy stereotype to see what these investments can do for you.
  7. Investing

    How Rising Interest Rates Impact Bond Portfolios

    A look at the impact that changing interest rates - rising or falling - have on bonds and what investors need to consider.
  8. Investing

    Why Muni Bonds and Bond Funds are Perfect Together

    Municipal bonds and bond funds differ in several ways, which is partly why they complement each other well.
  9. Investing

    How to Manage Risk With Bonds in Your Portfolio

    Bonds are not immune to risk, so be sure to diversify your portfolio with proper asset allocation.
  10. Investing

    An Introduction To Corporate Bond ETFs

    Learn about the pros and cons of these specialized ETFs, and get in on the opportunities they can provide.
Frequently Asked Questions
  1. What is the formula for calculating earnings per share (EPS)?

    Learn why earnings per share (EPS) is often considered to be one of the most important variables in determining a stock’s ...
  2. What is the formula for calculating internal rate of return (IRR) in Excel?

    Understand how to calculate the internal rate of return (IRR) using Excel and how this metric is used to determine anticipated ...
  3. What is the formula for calculating net present value (NPV) in Excel?

    Understand how net present value is used to estimate the anticipated profitability of projects or investments, and how to ...
  4. Why are IRA, Roth IRAs and 401(k) contributions limited?

    Find out why contributions to IRA, Roth IRA and 401(k) retirement savings plans are limited by the IRS, including what the ...
Trading Center