Bonds are the unsexy half of investing. They will rarely double your money, but they keep portfolios calm during the years that crush 100%-stock investors.
What a Bond Is
A bond is a loan. You give the issuer (US Treasury, a state, a company) cash for a fixed term in exchange for periodic interest payments and the return of principal at maturity. Use our Bond Yield Calculator to compute current yield and YTM for any bond.
The Big Categories
- Treasuries: Issued by the US government. The safest dollar instruments in the world.
- Municipals: Issued by states and cities. Interest is typically federal-tax-free and sometimes state-tax-free.
- Corporate (Investment Grade): Issued by financially sound companies. Higher yield than Treasuries.
- High-Yield (Junk): Issued by riskier companies. Higher yield, equity-like behavior in downturns.
- TIPS: Treasury Inflation-Protected Securities. Principal adjusts with CPI, so the real yield is the headline yield.
Duration vs Coupon
Two things drive bond price moves: duration (how long until you get your money back) and yield. Longer duration means more price sensitivity to interest-rate changes. In 2022's rate hikes, long-duration bonds fell 25% — much like a stock crash.
How Much to Own
A simple rule of thumb is the 110-minus-age stock split, with the remainder in bonds. Within bonds, most investors do well with a total bond market fund holding a mix of Treasuries and high-grade corporates.
Bottom Line
Own bonds for stability, not return. Choose duration that matches your time horizon. Avoid chasing high yield — when something pays 10% with the word "safe" next to it, it isn't safe.
Run the numbers yourself
Plug your own inputs into our free calculators — no signup.