Bonds

A bond is basically an IOU from a company or government, issued to raise money. When you buy a bond, you're lending money to the bond issuer.

A bond carries the promise that the original amount you paid will be repaid to you at a specific time. A certain amount of interest, to be paid to you regularly over the life of the bond, is also typically promised. Interest rates vary depending on the reliability of the bond issuer and the current cost of borrowing money in the economy.

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As part of a diversified portfolio, bonds can help you manage market fluctuations and generate income.

Bonds are fixed income investments that are subject to credit, market and interest rate risk. Fixed income values typically fall when interest rates rise, and rise when interest rates fall.

What do bonds offer?

Less risk than common stocks. Bonds are considered to have less risk than stocks, which tend to fluctuate in price more frequently
Higher interest rate potential. Bonds typically offer a higher rate of interest than savings vehicles, such as savings accounts (savings accounts are FDIC insured, which guarantees both the principal and interest in the account)
Regular payments. Bonds pay regular and pre-determined interest

Four common types of bonds include:

U.S. Government Securities. Securities that are direct government debt obligations issued by the U.S. Government
Mortgage-backed Securities. These debt obligations are created by pooling mortgage debt and selling it as individual bond securities
Municipal Bonds. State or local governments issue debt obligations to fund civic projects
Corporate Bonds. Companies issue debt obligations issued to raise capital

Find an investment professional at a WaMu financial center near you for a free consultation.

Bonds

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