What Are Bonds?
Bonds are a way for investors to loan money to governments, corporations, and other types of institutions. In exchange for borrowing money, the issuer of the bond agrees to pay the bond holder interest at a specified rate and repay the debt at a designated date in the future.
For instance Treasuries, which are bonds issued by the U.S. Government, are particularly safe because it’s hard to imagine the U.S. Government won’t make due on its obligation (Treasuries are the type of bonds Betterment accounts are invested in). Due to the high certainty of repayment, returns for Treasuries are moderate .
On the other hand, if a company with a weak financial position issues a bond there will be serious questions about repayment and as a result the company will offer a high interest rate to entice lenders. Especially risky and high yielding bonds are often called junk bonds.
The risks and returns of a bond depend not just on the credit worthiness of the issuer but also on the duration; bonds that have a long duration until repayment are higher risk and higher reward.
How’d the Market Do? That’s Harder To Answer Than You Think
In taxable investing, your after-tax return—the amount you “take home”—is what’s important. Yet far too many investors focus on market performance. Let’s look at the difference.
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Our new design represents a synthesis of a large body of customer feedback. We hope it meets your expectations.
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