When you buy a bond, you re actually loaning money to the issuer. That s right! YOU are the bank! Of course, you expect that money back and then some. So, the issuer pays YOU interest for the privilege of using your money. Suddenly, you have fixed income. People think bonds are more conservative than stocks and generally, that s true. While you hold onto them, the marketplace ups and downs don t matter. But changing demand does affect the price, so you can also trade bonds to make capital gains from selling for more than you paid to buy them. If you want to put all your eggs in a basket of bonds, no problem! You can be diversified by buying bonds that are radically different like one that matures by St. Patrick s Day and one that matures next century!
