What is a bond?

A bond is defined as a fixed income investment where an investor loans money to an entity, which can include corporations, municipalities, or governments, in exchange for periodic interest payments and the return of the bond's face value at maturity. This loaning of money means that the bondholder is essentially a creditor to the issuer, and the terms of the bond will outline how interest is paid, the maturity date, and other key details.

Investing in bonds is often seen as a way to earn income with lower risk compared to stocks, as bonds typically provide more predictable returns through fixed interest payments. The nature of a bond makes it a crucial component of many investment portfolios, especially for those seeking stability or income over time.