Bond
A bond is a loan you make to a government or company in exchange for interest payments.
Why this matters
Bonds can reduce portfolio volatility and provide income, though they still carry risk.
Simple example
You buy a government bond that pays interest every six months until maturity.
Common mistakes
- Assuming all bonds are risk-free.
- Ignoring interest-rate and credit risk.
- Holding only one bond issuer and calling it diversified.