Types of investments

Bond

A loan made to a company or a government. In return, it pays interest and gives the money back on a set date, called maturity.

Why does it matter?

Bonds are how many companies and governments borrow, and they are the main alternative to shares for many investors.

How do I read it?

The main risks are that the borrower can't pay (a default) and that interest rates rise, which lowers the price of existing bonds. If a company runs into trouble, bondholders are paid before shareholders.

Example

You lend $1,000 to a company through a 5-year bond paying 6% a year. You receive $60 every year and the $1,000 back at the end, as long as the company can pay.