What Are Bonds? And What Are iBonds ETFs?
In a Nutshell
Bonds are loans to governments or companies that pay fixed interest and return principal at maturity, making them more predictable than stocks but requiring research and timing if bought individually. iBonds ETFs simplify this by bundling hundreds of bonds with the same maturity date into a single tradable fund, giving investors diversification, income, and a set timeline without managing each bond themselves. A bond ladder can be built by holding iBonds ETFs across multiple maturity years to spread risk and match future cash needs.
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The bond market has over 140 trillion dollars invested in it globally, making it larger than the stock market and far larger than cryptocurrency. Bonds play a major role in investing for the future.
A bond is an investment where you lend money, typically to a government or a company, for a set period of time until it reaches its maturity date. The maturity date of a bond is the predetermined date when your original investment is returned to you in full. You lend your money for a specific amount of time, and then get it back.
Bonds pay interest. The interest rate associated with a bond is how much the borrower pays you for using your money. It's usually an annual percentage, and it's paid out on a set schedule. Sometimes twice a year, sometimes more frequently depending on the bond.
Example: If you invest $1,000 in a bond with a 5% annual interest rate and a maturity date 5 years out, in 5 years, assuming the terms of the loan are met, your $1,000 will have turned into $1,250, representing 25% growth.
Many investors use bonds alongside stocks to help generate income, preserve capital, and add diversification to balance out some of the ups and downs of the market. With stocks, there's no set interest rate, so there's potential for big growth, but also big volatility. Even dividend-paying stocks can change their rates over time. Bonds work differently.
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