Getting Started With Bonds

Corporations and governments are just like you and me -- every now and then, they need to borrow a little cash. By buying a bond, you spot them the money. And here's the good part: Unlike when you loan friends money, corporations and governments typically pay you back on time, with interest.

For investors, the big appeal in buying bonds is predictability. They pay interest at a fixed rate for a fixed term and are generally considered a safer investment than stocks because those fixed payments limit the downside. But caveat emptor: if there's interest rate-uncertainty in the market, even bonds can get become a risky investment.

Bond investing may seem complicated, but the basic idea isn't: You lend your money, you get fixed interest payments over the term of the loan, then you get your money back at the end. ...