What’s a Bond? – Part 1

I'm not an investing pro, but I'm not a newbie either.  I've sat through several classes and learned the basics, including those on bonds.  However, I've never spent much time outside the classroom researching this investment class. 

The biggest reason has to do with my investing style.  I'm 25 years old and the only investments I own are for one specific goal – retirement.  In other words, I don't need this money anytime soon.  If my retirement investments completely dry up tomorrow, I wouldn't even notice.  Ok, so I may be exaggerating, but only slightly.  My point is this. In general, bonds are more conservative investments than equities.  Bond returns are more stable in the short term, but over the long term, bonds will under perform equities.  Even if the difference is only a few percentage points, the size of my nest egg in 40 years could vary greatly, thanks to compound interest.  Therefore, I have basically chosen to ignore this asset or investment class…until now.

I'm perfectly comfortable with 100% of my retirement investments residing in stocks.  But soon, I will be investing for goals other than retirement.  Most, if not all of these goals I hope to reach well before retirement.  This means I will be looking for more conservative investments, investments that will still earn more than my local bank's savings account, but without an extraordinary amount of short term risk.

This is why I will be covering everything from the types of bonds available, to when and why you might consider investing in certain types of bonds.  If you have any questions, I'll be glad to try and find the answer!