What Is A Bond?

The Bond Defined

When speaking in terms of investment tools and the stock market, a bond is simply a purchased debt security.  The bond is essentially a loan to the company in which one wishes to invest money.  The borrower, the company to be invested in, also referred to as the authorized issuer, agrees to pay back the money borrowed with interest.  In bond investments the interest is referred to as a coupon.  When buying stock bonds one is investing in a company in a non-traditional form. The traditional form of investment in the stock market involves buying a share, or a piece of the company.  When the company performs well the share value will increase as the company collects more capital.  The money earned in a stock market share investment is the increased per share value over the initial amount paid for the share, plus company earnings dividends in some cases.  When speaking of a stock bond, bond investments make their money solely on the interest of the bond amount, the coupon.  The coupon amount for bond investments is set in advance and interval repayment dates are specified when the money will be returned to the bond investment´s investor.

Stock Bond Advantages

Bonds and securities, sometimes incorrectly referred to as stock shares, are very similar with only a very important difference: when buying bonds you are essentially a creditor who is owed money by the company holding the bond investment, while a share holder actually owns a portion, albeit usually minute, of the company itself.  Bond investments can be very advantageous investments over buying stock shares and securities.  One important difference, the key to investment security, is the gains amount or coupon interest on the money lent in the bond is specified.  The amount will not increase, but more importantly legally cannot decrease or be paid out smaller.  The amount stated on the bond is the amount the investor buying bonds will receive.  The risk is minimized for the stock bond investor as the money is all but guaranteed in interest payments to make him/her a profit.  Many wise investors use bond investments as part of their overall strategy for stock market investing.  Should their more risky security investments fall short or otherwise turn a loss; the bond investments will often keep their stock market portfolio from taking extensive loss.  Likewise most mutual funds will invest a portion of their client’s money in the bond investments market.

Related posts:

1. How Are Bonds Funded?
2. What Is The Interest Rate On A Bond?
3. What Is A Municipal Bond?
4. What Is A Treasury Bond?
5. What Is A Government Bond?