one, you will have a better understanding of what your advisor is talking about.
Many people think of bonds as an investment for older people. While many older people do enjoy the benefits that bonds offer, such as investment income, bonds aren’t just for the older generation. Rather, they are effective investment tools for just about anyone. There are a number of different types of bonds. They include corporate bonds, municipal bonds, U.S. government obligations (i.e., Treasury bills, Treasury notes, and Treasury bonds), U.S. savings bonds, U.S. govern- ment agency securities, zero-coupon bonds, and deep-discount bonds.
Bonds are debt instruments designed to help either a company or the government raise capital. When you purchase a bond, you are loaning money to the bond issuer. You exchange cash for the promise of regular interest payments (with the exception of zero-coupon bonds) and the return of the face value of the bond at the time of maturity. Zero-coupon bonds don’t pay regular interest; rather, they are purchased at a discount and mature at a higher face value.
Bonds are typically good investments for those who are seeking a steady cash flow or for those who don’t have an immediate need for the principle amount invested. Bonds help diversify your portfolio by tempering the amount of risk you are taking with stocks. Plus, they can help fund short- to intermediate-term goals through their interest payments, or you can sync up the maturity dates of the bonds with the time frame of your goals.
Maturity—The date on which a bond comes due and is to be paid off
Face value—The amount for which the bond is, and what is expected at maturity. Also known as “par value.”
Coupon rate—The interest rate on a bond.