What is a Bond?

Bonds are back in favour with investors but they are often seen as harder to understand than shares - how do they work and role can they play in an investment porfolio?

James Gard 11 November, 2019 | 9:13AM

Pounds

Bonds are a popular choice among income-seeking investors, but they can be more complicated to understand than equities. But it's worth taking the time to get your head around the asset class and how bonds can benefit your investment portfolio. 

What is a Bond?

Companies and governments raise money by issuing bonds and they attract investors looking for income and some degree of capital security. Governments use the money for public spending on health, education and defence, for example, and firms issue bonds to fund projects and acquisitions.They could be seen as "IOUs" on a grand scale - you lend your money and, at the end of an agreed period, you should get it back in full. 

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About Author

James Gard  is content editor for Morningstar.co.uk

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