Why invest in bonds?

A bond is a financial product that allows an investor to lend money to an issuer. In exchange, lenders are paid interest. This is also known as “coupon interest. Simply put, it is a form of borrowing. By definition, the buyer of a bond is a lender. Issuing bonds is one way for companies to finance themselves. Generally, borrowed amount must be repaid over time on a prearranged date. Until that date, the bondholder (lender) receives fixed interest payments. Issuers can be either companies or even national governments.

Key benefits.

The effective yield is known in advance, provided you keep the bond in the portfolio until maturity.
Bonds can provide a good opportunity for the defensive portion of the portfolio.

Main risks

If you want to sell the bond prematurely, you run a price risk. It can also be difficult to sell your bond during the term due to, for example, interest rate fluctuations (liquidity risk).

You can lose your investment if the issuing party gets into trouble.

Always inform yourself well before you consider investing in a particular bond and always make sure it suits your personal situation, investment objective, investment horizon and risk appetite. After all, investing involves risk; your investment can also become worth less.