Bonds

Individual bonds are like loans you give to governments or companies. You get regular interest payments while you hold the bond, and your initial investment is paid back when the bond matures. Bond funds, on the other hand, are a collection of many loans from different investors. Bond funds can be bought and sold at any time and aren't tied to a specific maturity date.

The main difference is that individual bonds are specific loans, while bond funds are a mix of many loans. Bond funds offer more diversification because they spread your money across different loans, reducing risk. So, if you want more diversification, you might want to consider bond funds.

Like all investments, bonds have pros and cons. They're designed to provide a steady income stream through interest payments and are often less risky than stocks. However, bond yields can be lower than those of other investments.

The best time to invest depends on market conditions and interest rates. To decide if bonds are right for you, consider your goals, risk tolerance, and time horizon.

When interest rates rise, new bonds are issued with higher interest rates, which makes them more appealing to investors. As a result, existing bonds with lower interest rates become less attractive and their value decreases.

If investors sell their bonds before they mature, they may receive less money than what they initially paid because buyers can get new bonds with higher interest rates. However, if investors hold onto their bonds until maturity, they’ll receive the full face value

Short-term bonds are bonds that have a short time frame to maturity, usually a few months to a few years. They're less risky than long-term bonds because they aren’t affected as much by changes in interest rates. The benefits of short-term bonds, compared with long-term bonds, are that they:


• Have lower risk.
• Allow you to access your money sooner.

• Can provide relatively stable and predictable returns.

You might consider short-term bonds for near-term financial goals. Short-term bonds offer liquidity, allowing easy access to funds and can reduce interest rate risk compared to long-term bonds. They can also offer higher rates than cash savings, possibly giving you more earnings than leaving your cash in a bank checking or savings account.

Bonds offer 2 main benefits in your portfolio: They provide a steady income stream and help offset some of the volatility you might see from owning stocks.

Bonds are issued by governments and companies to raise money. When you buy a bond, you lend money to the issuer. They promise to pay you back the full amount on a specific date and make interest payments, usually twice a year.

Unlike stocks, bonds don't give you ownership in a company. You won't gain from the company's growth, but you also won't face as much risk if the company struggles, as long as it can still pay its debts.

Calculate a hypothetical investment

To redeem series EE or series I savings bonds, use the TreasuryDirect website for electronic bonds or visit a local bank for paper bonds. After redemption, you can transfer the funds to your Vanguard account by linking your bank account and using the Transfer Cash feature.

Interest from savings bonds is federally taxable but exempt from state and local taxes, and you’ll receive a Form 1099-INT if you redeem more than $10 in interest. If you use the proceeds for qualified education expenses, you may be eligible for the education tax exclusion.

Certificates of deposit (CDs) are bank deposits that offer an interest rate for a certain period of time. The issuing bank agrees to return your money on a specific date.

Learn about CDs