How bonds work

You have a number of important variables to consider when
you invest in bonds, including the stability of the issuer, the
bond’s maturity or due date, interest rate, price, yield, tax status,
and risk. As with any investment, ensuring that all these
variables match up with your own investment goals is key to
making the right choice for your money.
Be sure to buy a bond with a maturity date that tracks with
your financial plans. For instance, if you have a
child’s college education to fund 15 years from now and you want to
invest part of his or her college fund in bonds, you need to
select vehicles that have maturities that match that need. If
you have to sell a bond before its due date, you receive the
prevailing market price, which may be more or less than the
price you paid.

In general, because they often specify the yield you’ll be paid,
bonds can’t make you a millionaire overnight like a stock can.
What can you expect to earn? Long-term corporate bonds,
for example, have paid anywhere from an average of 1% in
the 1950s to 13% in the 1980s, when in general all bonds did
well. What can you expect to lose?