What are bonds?

Simple explanation

A bond is a loan you give to a government or company. They pay you interest for a set time, then return your money at the end.

Picture this

An I.O.U. note. You lend €1,000 for 10 years. You get small interest payments each year. After 10 years, you get the €1,000 back.

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Real example

A 10-year Dutch government bond at 3% pays you €30 per year per €1,000 lent. After 10 years, you've earned €300 in interest AND get your €1,000 back.

Common mistake

Thinking bonds are 'safer than stocks' in all situations. Bonds CAN lose value — especially when interest rates rise — but typically swing less than stocks.

Quick check

Takeaway

Bonds balance a portfolio: stocks for growth, bonds for stability.

Related glossary terms